How emotional trading can destroy you – tips to avoid it
We’re often told not to make critical decisions when we’re angry. But, if you think for a moment, any emotion on the extreme edge of the spectrum will cloud your judgment. The same goes for your day-to-day trading psychology. Having the wrong emotions during decision-making may, well, destroy you.
Hence, you must understand the risks of emotional trading and how to improve trading psychology for a more relaxed and successful trading path. So it goes for Forex, stocks, and even crypto.
Why trading psychology is important?
One of the key factors that make a successful or a failed trader is his/her decision-making capabilities. Of course, your emotional state will play the most important role in this case. The sharper you are when you’re making a call, the more likely it’s the right decision.
When we say “emotional” trading, it can mean many things. Anger, sorrow, greed, fear, restlessness, etc., are all different forms of emotion and are equally capable of clouding your thoughts.
The trading sector itself is the most significant catalyst in changing your emotional state. During volatile moments in the market, many traders try to unload their stocks or crypto because they don’t want to incur a loss. But it’s the panic and mass unloading in the first place that’s causing the price to drop.
Doubt is another area where a lot of rookie traders go wrong. They “doubt” the ability of a stock to increase in price, and they pull the trigger too early. It results in them leaving a lot of profit margin on the table.
As you can see, only developing the correct trading psychology can help you steer this rough water. You need to think and analyze a situation beyond what you believe is true to master trading psychology.
The best articles in your mailbox
Subscribe and get essential info on trading weekly
Great! Please check your email
We've sent you an email to confirm your subscription
Something went wrong
Try reloading the page. If that doesn't help, please try again later
How to improve trading psychology?
Mastering trading psychology is easier than it sounds. There’s a saying that goes, “The greatest enemy of the trader is fear. He who is afraid loses!”
While it might sound a bit dramatic, you can’t deny that it’s true. So, the first thing you need to eliminate is fear. And for that to happen, you first need to identify what you’re afraid of. Then, pick the top 5 things you’re afraid of and outline the possible solutions.
When you’re on top of what might happen and what you can do to prevent it, fear will automatically leave your system, helping you think more clearly.
Regret is another significant emotion to keep in check when you’re learning how to improve trading psychology. Don’t regret decisions. It’s a vicious cycle that’ll take the Zen out of you forever. If you make a wrong call, accept it as the collateral damage of trading and move on.
What you can do in this case is not go all out. Instead, keep a balance at hand when you’re trading so that a big loss doesn’t threaten your survival.
One of the most important things you can do in mastering trading psychology is research. The more you know about something, the more accurately you can dial in the settings. It goes for every walk in life, including trading. When you know the ins and outs of the markets, very few things can surprise you. In return, clouding your decision-making abilities.
Tips to be a successful trader
Before we wrap the wrath of a bad emotional state on your trading abilities, we’d like to share some tips. Hopefully, these will help you be a better and more relaxed trader.
- Manage your expectations. Trading is not for overnight profits.
- Practice. Practice. Practice.
- Don’t bother with the “tips” you get from fellow traders. They’re not true in most cases.
- Remind yourself what you’re getting into and evaluate your financial status before doing so.
- Don’t take a profit streak too far. Instead, book your profits and call it a day before it’s too late.
When you’re trying to figure out how to improve trading psychology, we know you’re distressed. So take a deep breath and relax. You now know why trading psychology is important. You also know the primary ways of mastering trading psychology.
All there is left for you to do is act on these pieces of information. Then, you’ll overcome any emotional distress in no time.