If you want to succeed in trading, it is important to strictly follow the chosen trading strategy. Unfortunately, even professional speculators sometimes fail to stay on the chosen path, especially if elevated emotions interfere. Driven by fear or, conversely, excitement, market players abandon their trading strategy, which leads to rather negative consequences. However, you may avoid such failures if you learn how to keep in check your emotions.
Unfortunately, you will not be able to completely protect yourself from strong emotions and become sort of a robot, trading with a cold calculation. In any case, when making transactions, you will experience a spectrum of different feelings because this is a part of human nature. The primary task of a trader who is determined to succeed is to try to minimize emotions and neutralize their impact on trading. Therefore, you need to learn how to assess your psychological state correctly. It is vital for investors to understand what exactly drives them in the pivot moments. Only by seeing the difference between emotions and rational approach, will they be able to achieve the inner balance and make profitable transactions.
Let's discuss what emotional states market players may be dragged into when trading. As a matter of fact, all human feelings can be divided into two main groups – negative and positive. So in the psychology of trading, there are two categories of emotions. Some emotions torment traders making them extremely anxious, while others, on the contrary, inspire them to open gainful positions. If you think that the danger lies only in negative emotions, you are very much mistaken. Experienced market players are well aware that sometimes an elevated spirit (for example, overexcitement after a profitable trade or after a successful month) may cause even more harm. Therefore, it is necessary to control all feelings without exception.
The most haphazard negative emotions are fear and greed. As a rule, beginners get acquainted with the first feeling quicker than with the second. Besides, there is even such a thing as primary fear. Feelings of depression, anxiety, and uncertainty may start bothering traders even before they open their first position. They watch the chaotic movements of quotes and they are seized by an uncontrolled panic. It seems to them that they do not know anything about trading and do not understand when to start.
Savvy investors advise them not to succumb to such pessimistic feelings and try to think adequately. If you do not have any result yet, neither positive nor negative, then it is too early to judge the level of competence. You can get a fair assessment of your abilities only when you perform at least 5-10 operations and carefully analyze their results.
If you are afraid of losing your capital on the first transaction, there is a great option on how to cope with this anxiety. Experienced market players strongly recommend that beginners do not build an ambitious trading plan at the start but come up with a modest one, for example, with a minimum deposit. Even if you fail, it will not be a catastrophe for you. In addition, you can initially try to perceive more positively your first potential failures. Consider the losses as a tuition fee or as an investment in the future. So, if you try hard, you will certainly receive a bigger reward.
In trading psychology, there is such a definition as secondary fear. It is much stronger than the primary one since emotions are no longer groundless here but are supported by arguments, e.g. memories of past failures. Having once experienced disappointment, it is very difficult for a trader to put his/her capital at risk again. To cope with emotions, one should work on mistakes. It is necessary to conduct a detailed analysis of unsuccessful transactions and try to find the best solution for them. What is more, a gradual and very careful immersion in trading may be less stressful.
Professional traders give 3 simple tips:
Take a short break (1-2 weeks). During this time, you should practice market analysis. There is no need to trade during this period, just record your observations, imagining how you would have acted in this or that situation. After the break, be sure to analyze your forecasts. If most of them would have brought you profit, it means that emotions indeed have been the main reason for incurred losses. If the situation is the opposite, it means that you are misinterpreting trading signals and you should fill the gaps in your knowledge of technical analysis.
After having analyzed your skills, think about your future trading plan. Short-term ones will be the best option.
Try to choose some less volatile instruments (for example, the EUR/USD pair or shares of the most liquid and reliable companies).
The opposite emotion to fear is greed. As a rule, while traders are dealing with self-doubt and are mulling over every step, they have not experienced yet the feeling of overexcitement and the desire to earn more. Greed is a very strong feeling that is rarely experienced by those who are afraid. It is most common for people who are prone to risk. It usually overwhelms traders for two reasons:
Some people have a natural predisposition to it (greed is a common characteristic of players who by their nature gravitate to leadership and strive to live their life to the full).
Some people have a natural predisposition to it (greed is a common characteristic of players who by their nature gravitate to leadership and strive to live their life to the full).
As you can see, greed and fear are entirely opposite emotions. However, they have one common feature: both emotions can be managed with the help of a trading plan. Of course, even a thorough organization of work is not able to change the temperament but it may discipline traders and thereby protect them from losses.
Let's have a look at what important steps professional players advise beginners to follow in order to avoid the overwhelming feeling of greed:
Weigh profit and risks.
Before making any trading decision, always think about the ratio of your expected reward and potential risks. The golden rule of money management says, "The profit should always be higher than the risk."
Control losses.
A greedy market player always considers how much he/she can earn. At the same time, rarely do they think about how much they can lose. Those who are eager to earn money always take into account potential losses.
Use pending orders.
A Stop Loss order protects profit when the market turns against the trader. Take Profit is a type of a limit order that specifies the exact price at which to close an open position with a profit. Never be tempted to move these orders.
Do not increase leverage.
High leverage allows market players to open positions several times exceeding their real funds. However, along with the opportunity to make a huge profit, there is also the risk of incurring similarly big losses. For this reason, professionals recommend that beginners refrain from using leverage above 1:50.
Do not open many positions.
It is better not to open as many positions as possible at the same time. Remember that even experienced traders make few orders. Their secret of success is that almost all transactions are profitable.
Set the limit for the trading day.
One of the best ways to control greed is to set a daily limit. When you reach the limit, you must definitely postpone trading until tomorrow. Let's say your target is 50 points and it has already been passed. So, you should stop trading today. Even if you think you might keep trading and you have enough funds, you should not break the rules and continue trading on this day.
Do not try to win back losses.
As soon as you have the slightest desire to recoup your losses, it is worth taking a break. Postpone trading for a while, so as not to become a victim of the tilt. Tilt in trading is a situation when speculators act in the state of a strong emotional agitation and either cannot or have no intention to control their actions, being completely in the grip of emotions. Thus, they deviate from the strategy, lose control of what is happening and make mistake after mistake.
As soon as you have the slightest desire to recoup your losses, it is worth taking a break. Postpone trading for a while, so as not to become a victim of the tilt. Tilt in trading is a situation when speculators act in the state of a strong emotional agitation and either cannot or have no intention to control their actions, being completely in the grip of emotions. Thus, they deviate from the strategy, lose control of what is happening and make mistake after mistake.
Here are some useful tips that if used wisely will help you build a winner's mindset:
Be patient. As practice shows success always comes to those who are patient enough as well as hard-working and diligent. The same works for trading.
Be persistent. Do not let failures break you. Consider any mistake a valuable lesson and continue to move on with this experience.
Be grateful. Regardless of how your trading is unfolding with gains or losses, be always grateful for the opportunities that the market provides.
Believe in yourself. Do not torment yourself with thoughts about incurred losses and your worthlessness. Even the best traders in the world cannot avoid losses. Instead of self-loathing, it is better to analyze mistakes in order to receive a stable profit.
Be keen on trading. Great success in the market comes only to those who are really passionate about what they are doing, those who really like to analyze indicators and monitor charts, who actually enjoy trading. Therefore, the simplest thing you can do for the sake of your financial well- being is just to be really interested in trading.
Unfortunately, you will not be able to completely protect yourself from strong emotions and become sort of a robot, trading with a cold calculation. In any case, when making transactions, you will experience a spectrum of different feelings because this is a part of human nature. The primary task of a trader who is determined to succeed is to try to minimize emotions and neutralize their impact on trading. Therefore, you need to learn how to assess your psychological state correctly. It is vital for investors to understand what exactly drives them in the pivot moments. Only by seeing the difference between emotions and rational approach, will they be able to achieve the inner balance and make profitable transactions.
Let's discuss what emotional states market players may be dragged into when trading. As a matter of fact, all human feelings can be divided into two main groups – negative and positive. So in the psychology of trading, there are two categories of emotions. Some emotions torment traders making them extremely anxious, while others, on the contrary, inspire them to open gainful positions. If you think that the danger lies only in negative emotions, you are very much mistaken. Experienced market players are well aware that sometimes an elevated spirit (for example, overexcitement after a profitable trade or after a successful month) may cause even more harm. Therefore, it is necessary to control all feelings without exception.
The most haphazard negative emotions are fear and greed. As a rule, beginners get acquainted with the first feeling quicker than with the second. Besides, there is even such a thing as primary fear. Feelings of depression, anxiety, and uncertainty may start bothering traders even before they open their first position. They watch the chaotic movements of quotes and they are seized by an uncontrolled panic. It seems to them that they do not know anything about trading and do not understand when to start.
Savvy investors advise them not to succumb to such pessimistic feelings and try to think adequately. If you do not have any result yet, neither positive nor negative, then it is too early to judge the level of competence. You can get a fair assessment of your abilities only when you perform at least 5-10 operations and carefully analyze their results.
If you are afraid of losing your capital on the first transaction, there is a great option on how to cope with this anxiety. Experienced market players strongly recommend that beginners do not build an ambitious trading plan at the start but come up with a modest one, for example, with a minimum deposit. Even if you fail, it will not be a catastrophe for you. In addition, you can initially try to perceive more positively your first potential failures. Consider the losses as a tuition fee or as an investment in the future. So, if you try hard, you will certainly receive a bigger reward.
In trading psychology, there is such a definition as secondary fear. It is much stronger than the primary one since emotions are no longer groundless here but are supported by arguments, e.g. memories of past failures. Having once experienced disappointment, it is very difficult for a trader to put his/her capital at risk again. To cope with emotions, one should work on mistakes. It is necessary to conduct a detailed analysis of unsuccessful transactions and try to find the best solution for them. What is more, a gradual and very careful immersion in trading may be less stressful.
Professional traders give 3 simple tips:
Take a short break (1-2 weeks). During this time, you should practice market analysis. There is no need to trade during this period, just record your observations, imagining how you would have acted in this or that situation. After the break, be sure to analyze your forecasts. If most of them would have brought you profit, it means that emotions indeed have been the main reason for incurred losses. If the situation is the opposite, it means that you are misinterpreting trading signals and you should fill the gaps in your knowledge of technical analysis.
After having analyzed your skills, think about your future trading plan. Short-term ones will be the best option.
Try to choose some less volatile instruments (for example, the EUR/USD pair or shares of the most liquid and reliable companies).
The opposite emotion to fear is greed. As a rule, while traders are dealing with self-doubt and are mulling over every step, they have not experienced yet the feeling of overexcitement and the desire to earn more. Greed is a very strong feeling that is rarely experienced by those who are afraid. It is most common for people who are prone to risk. It usually overwhelms traders for two reasons:
Some people have a natural predisposition to it (greed is a common characteristic of players who by their nature gravitate to leadership and strive to live their life to the full).
Some people have a natural predisposition to it (greed is a common characteristic of players who by their nature gravitate to leadership and strive to live their life to the full).
As you can see, greed and fear are entirely opposite emotions. However, they have one common feature: both emotions can be managed with the help of a trading plan. Of course, even a thorough organization of work is not able to change the temperament but it may discipline traders and thereby protect them from losses.
Let's have a look at what important steps professional players advise beginners to follow in order to avoid the overwhelming feeling of greed:
Weigh profit and risks.
Before making any trading decision, always think about the ratio of your expected reward and potential risks. The golden rule of money management says, "The profit should always be higher than the risk."
Control losses.
A greedy market player always considers how much he/she can earn. At the same time, rarely do they think about how much they can lose. Those who are eager to earn money always take into account potential losses.
Use pending orders.
A Stop Loss order protects profit when the market turns against the trader. Take Profit is a type of a limit order that specifies the exact price at which to close an open position with a profit. Never be tempted to move these orders.
Do not increase leverage.
High leverage allows market players to open positions several times exceeding their real funds. However, along with the opportunity to make a huge profit, there is also the risk of incurring similarly big losses. For this reason, professionals recommend that beginners refrain from using leverage above 1:50.
Do not open many positions.
It is better not to open as many positions as possible at the same time. Remember that even experienced traders make few orders. Their secret of success is that almost all transactions are profitable.
Set the limit for the trading day.
One of the best ways to control greed is to set a daily limit. When you reach the limit, you must definitely postpone trading until tomorrow. Let's say your target is 50 points and it has already been passed. So, you should stop trading today. Even if you think you might keep trading and you have enough funds, you should not break the rules and continue trading on this day.
Do not try to win back losses.
As soon as you have the slightest desire to recoup your losses, it is worth taking a break. Postpone trading for a while, so as not to become a victim of the tilt. Tilt in trading is a situation when speculators act in the state of a strong emotional agitation and either cannot or have no intention to control their actions, being completely in the grip of emotions. Thus, they deviate from the strategy, lose control of what is happening and make mistake after mistake.
As soon as you have the slightest desire to recoup your losses, it is worth taking a break. Postpone trading for a while, so as not to become a victim of the tilt. Tilt in trading is a situation when speculators act in the state of a strong emotional agitation and either cannot or have no intention to control their actions, being completely in the grip of emotions. Thus, they deviate from the strategy, lose control of what is happening and make mistake after mistake.
Here are some useful tips that if used wisely will help you build a winner's mindset:
Be patient. As practice shows success always comes to those who are patient enough as well as hard-working and diligent. The same works for trading.
Be persistent. Do not let failures break you. Consider any mistake a valuable lesson and continue to move on with this experience.
Be grateful. Regardless of how your trading is unfolding with gains or losses, be always grateful for the opportunities that the market provides.
Believe in yourself. Do not torment yourself with thoughts about incurred losses and your worthlessness. Even the best traders in the world cannot avoid losses. Instead of self-loathing, it is better to analyze mistakes in order to receive a stable profit.
Be keen on trading. Great success in the market comes only to those who are really passionate about what they are doing, those who really like to analyze indicators and monitor charts, who actually enjoy trading. Therefore, the simplest thing you can do for the sake of your financial well- being is just to be really interested in trading.
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