Manage your emotions while trading!
Psychology is a very important part of trading and, in general any financially based business decision is tied to our emotions. I feel that psychology is something that is a very critical aspect of trading and is something that every trader should get a handle on. Understanding your own psychology and understanding your own emotions when it comes to trading is something that you will have to learn and control.
Forex traders don’t only have to compete with other traders in the forex market but also have to deal with themselves. Many times as a Forex trader, you will find that you are your own worst enemy. We, as humans, are naturally emotional. Our egos makes us feel that we want to be validated and we want to prove to ourselves and others that we know what we are doing and we can take care of ourselves. We have a natural instinct for survival.
All of these emotions and instincts make up our psychology and these traits are what takes us through our every day life journey. We are all different and each of us handles issues, problems and life things differently. Many people don’t realize how much of their psychology actually controls them.
When it comes to trading, some of the time our emotions get the better of us and lead us to trading losses bigger than what we planned for, even though our trading plan is solid and well executed. Controlling our emotions is a critical part of trading and it does take time for each individual to get to understand how their own psychology works and then get it under control. Everyone finds their own time frame to work themselves out. It took me a while.
Some traders try to separate or divorce themselves from their emotions while they trade but it is virtually impossible. Some emotions may actually help improve your trading success but there is no real better way than learning to understand yourself by identifying your strengths and weaknesses and find a trading style that suits YOU.
How do Experienced traders handle emotions?
Experienced forex traders are quite good at controlling their emotions. Time in the market has given them the experience and understanding of themselves. They know exactly when to trade the market and when it’s better not to trade. With a sound strategy or system in place to follow the emotion is settled and controlled somewhat, but there are some important factors that put all the steps in place to get everything into its place. Below are some ways on how you can handle these emotions.
- Don’t trade out of greed: Control of Money Management (the next important aspect of trading and important article) is working out your risk profile. How much to risk and how much are you comfortable losing without giving you stress at night with an open trade. Experienced traders have all this worked out right at the very start before they make any trade.
- Always aware of the uncertainty in trading: Experienced traders are aware that there is no certainty in the forex market. Knowing the fact that no matter how good the strategy, system or signal for a trade is, the market can go against the prediction and plan at any time. If you clearly understand that the market will do what the markets want to do, then you don’t get a shock if the trade turns into a loss. Always be prepared to face a loss.
- Time for profit expectations: Understanding correct trade position sizing and proper take profit placement means you must give time for a trade to do its thing. This is also tied with greed and many new traders or novice traders think if they use a large lot size for a smaller profit target they will make money quickly. Watching a trade with a huge amount of your account at risk will certainly get your blood pumping and your emotions will be in high stress mode. Pro traders don’t do this, they stick to their plan.
- Having a good trading plan: As I mentioned above, a trading plan is what can take away some of the emotion for trading. A plan in place and following the plan in well-defined steps helps take away the issue of stress. A good plan includes good Money Management with a correct profit target area and a solid stop loss in place at a predetermined place. All of these are solid parameters in a plan for making a successful trade and turning you into a successful trader.
- Use a proven strategy or system: Now, this point is where everyone is trying to find the right strategy or system that works for them. This can take time as not all strategies work for everyone. I know this as I have tried many. To decide if a strategy is right for you, it must be tested over a length of time and number of trades to see if it’s profitable and works within your own time constraints for making the trades. Once you find something that works, then stick to it and only change if you think it has stopped working for you and you have tested something else that works better.
Psychology books and videos…
Below are what I know are good books and videos that you can read and watch to get your mind into gear for trading and get you understanding your own psychology and understand your own emotions. They are all well written and praised by many traders throughout the world. I have read these a long time ago and they helped with my trading immensely.
Trading In The Zone by Mark Douglas
Mark Douglas gives a fresh perspective on how the mind works that most people probably don’t realize. This is a very good book. After you read it you will have a much better understanding of how and why you believe some of the things that you believe in, some of them dating back to childhood. Once you have that understanding, you can then begin to take control of how and what you think, and that is a powerful tool when you are trading.
Mark Douglas Videos on How To Think Like A Professional Trader
Here Mark Douglas takes you through how he trades and how he helped pro traders improve their trading. Some of these videos are over an hour long so make sure you prepare yourself for a lot of valuable information to take in. All free on YouTube.
Trading For A Living by Dr Alexander Elder
Dr Elders Trading for a Living is based on three M’s: Mind, Method, and Money. Trading for a Living helps you master all of those three areas:
* How to become a cool, calm, and collected trader
* How to profit from reading the behavior of the market crowd
* How to use a computer to find good trades
Trading for a Living Psychology, Trading Tactics, Money Management on YouTube
Many hours of valueable lesson of great information.
These are the only two of the great trading teachers that I am listing. I have these books and have used them both a number of times to give me a re-fresher reminder for my trading. There are many other great books and videos out there as well but if you talk with any trader, most will know these titles and authors very well.
Managing your emotions is the answer to long-term success…
Summing it all up, understanding your psychology and controlling your emotion is an important aspect of forex trading. Many people fail at trading because of failing in this area. It may not be the biggest reason for some people to fail but I can tell you it is one major reason on why people do fail. Emotion has a big impact on how we deal with many things and money is high up on the list.
- Understand yourself: workout your psychology as best you can
- Understand your emotions when you put your money on the line
- Understand that there is always uncertainty in the markets, meaning, be prepared to take a loss even if you thought you got the trade and strategy right
- Use proper and correct Money Management so you don’t put yourself under stress. Proper and correct MM means you can lose and trade another day
- Educate yourself with great books and videos from people who know what understanding psychology is all about within trading
Once you understand that, then you can work on how to deal with it. Everyone has their own time frame on working things out but once they get a grip on their emotions, they can easily follow the next steps for the trading. If you’re new at trading you might think this is all rubbish, but I can assure you, that you will find out on how much of an impact psychology and emotion has an effect when you put your money on the line.
I hope my article helped you and the books and videos above help you. There are many other great books and videos but I know these are excellent as I have read them and watched them more than once to get me to become a successful trader.
Regards
John
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