Trading emotions

forex trading emotions

Trading – an emotional rollercoaster from greed to happiness. Trading tests every market participant in great detail as we all experience a series of emotions which span from excitement to a total surrender. Depending on a trading style one could make several trades per day or just a few per week. Obviously, the more trades we do, the more stress we feel which could potentially lead to a greater number of mistakes than usual.

If someone just made a substantial loss, it’s natural for that individual to be disappointed. But systematic errors emerge once we try impulsively win back some of the money we lost. At his stage no common sense exists, we are not relaxed, our judgement is clouded and, most importantly, we do not feel comfortable doing more business. However, after a loss in early days of our trading we just go through many charts and push ourselves to enter a trade as souls as possible. Stop! Don’t do it!

After many years of trading, I realized that even now it’s difficult to hide from emotions – they follow us in every step we make. After all, we are all humans… But even if we can’t escape it, we all can control it. I always try to work with myself and develop my emotional intelligence. One thing I know this helps to avoid unnecessary risk and prevent us from making decisions while we are emotionally fragile.

We all are as good as our strategies. So, as long as we stick to our plan we have everything under control. This allows us to risk only as much as we can tolerate losing, avoiding unnecessary risk. But let me tell you one thing, even if we follow all our trading rules, we sometimes run into situations when the market goes against us, and we can’t do anything about it, just watch trends developing that is downing your equity. Of course, I never feel entirely comfortable with it, but I firmly believe that there are ways to deal this emotional rollercoaster.

A pure logic as the following example could potentially help – a day trader should set some losses he/she is ready to tolerate. For example, after three losses in a row, I try to limit my trading that day. This is a great rule because unfavourable developments cause unhealthy emotions, which often result in the spontaneous decision to recover losses.

Another important point is not to rush into trades since even the smallest details could impact a potential outcome. This is why a well-established routine is critical for every trader. I would also like to note that every one of us should set specific targets before we engage meaning that the assessment of the risk happens before we enter the market.
After many years of trading, I have realized that it’s so crucial to feel comfortable with your trading.

It is also worth mentioning that it is usually not a good idea to change a set up along the way. In other words, when a trade is open we set specific targets such as stop losses and where we would be willing to take profits. I would encourage not to close these trades manually, let these deals work their magic. This will help to develop a sharp practice meaning that you stick to your plan all the way. I believe this method will prevent from even more dangerous situations where a trader takes profits or book losses too early.
And as I mentioned in my previous article, losses are part of this game, we have to treat them as expenses of running this business. All traders face losses; that’s normal. However, before you trade, please assess your risk appetite.