Emotions in trading: the personal enemy of your success

Emotions in trading: learning to save money and health

Emotions in trading have always been one of the main causes of losses, and at the same time − the main driving force for all types of money. Remember the classic idea: buyers push the price up because of greed, and sellers sell because of fear of losses?

It still works perfectly in any market.

Popular training materials on market trading almost do not pay attention to managing emotions. This is understandable: any broker is the first participant in the trading process, which is vitally interested in having you leave your deposit to the market.

That is why most newcomers, especially those who passed the «super fast» and «super effective» training in various brokerage «kitchens», remain psychologically unprepared for trading. And even good technical training will not help such players save their money.

Let’s get to the point.

For whom this article is?

  • For traders of any level of deposit and experience − read necessarily.
  • Investors with any level of financial intent are strongly encouraged if they respect their money.
  • Analysts and the rest of the public interested − it is desirable to understand the basic instincts that arise in the process of obtaining (and losing) real money.

But here’s the problem …

We would like to remind you that your emotional breakdown is also due to an unfair broker and speculators forming an «analyst» with «trading» signals, and big players along with politicians and economic news.

Let's try to reason as a psychotherapist who tries to bring the nervous patient into a stable state. We will arrange the basic emotions in the order of the harm reduction for your money. So …

Greed

Symptoms: The desire to earn at each price movement, planning future expenses (purchases, rest, pleasure) or solving existing financial problems with the help of the not yet earned money.

Do not be greedy. It's okay if you lose money. If you can not enter at a favorable price, forget about this deal and start looking for the next one.
Linda Bradford Raschke

How to cure?

A rigid manipulation is mandatory; it is recommended not to wait for superprofits, but to record regularly transactions at the level of average profit.


If − according to the trading strategy – the targets you have set (for a day, a week, a month) have already been reached, then more transactions should not be opened.

We continue to trade only with a high probability of success (see here Forex The Secret of Getting a Winning Psychology).


Then the most dangerous can be considered ...

Fear

Symptoms: Constant panic in any situation: a possible loss, entry into the transaction, about taking each, including − and non-trading, decision. As a result: insomnia, chronic fatigue, inadequate reactions, lack of logic in the analysis. Increasing losses quickly lead to a serious psychological breakdown.

How to cure?

You should reduce the trading lot. We trade only with the «clean» money (not someone else’s, not credit, not the last one).

You move to trading on pending orders to reduce the constant fear of a market entry. Temporarily we return to the demo account and additionally test (or change) the trading strategy. Correct the levels of allowable loss/profit to reduce the level of risk.

We have talked in details about various types of the Forex fears here.

Passion

Symptoms: Pathological desire to return losses, earn a lot of money, prove your exclusivity. Getting frequent losses only activates meaningless trade.

Because of the many transactions, you lack time for a full analysis of the market. The additional losses on the spread/commission sharply increase. At the end of the day you get the constant nervous tension from too often making trading decisions.

How to cure?

Do not turn daily work into speculation. Trade only on the strategy and only after the analysis of situation, and it is necessary − before the opening of the trade.

Learn to receive a small but stable profit, and conduct an honest analysis of your trading transactions. It is strongly recommended to reduce the total number of transactions and the transition from scalping to longer trade (see Trading Emotions & Psychology).

These emotions in trading are considered «technical», traditional for any risky business with elements of probability theory, which includes financial investment.

Next, let's talk about emotions more moral. So, in the next place we are ...

Envy

Symptoms: Someone else's success, profit, ability or knowledge causes constant stress and an incorrect assessment of their actions. Next you have problems of using someone else's experience and knowledge due to the constant comparison of the personal results with more successful colleagues. As the most difficult option − the development of the syndrome of failure and leaving the business.

How to cure?

Setting up real (and important personally for you!) trading purposes.

Consider trading as an independent business, and the result of trading is purely personal information. Do not allow comparative assessments, if necessary − organize your workplace in a separate room (no spectators, colleagues or family members).

Ambitions

Symptoms: Inadequate evaluation of yourself and your actions, unrealistic goals, bad reaction to losses. The search for reasons for failures outside of themselves and the market, psychological pressure on colleagues and loved ones.

Transactions on risky assets without actual analysis, with violation of the rules of money management. The worst option − the transition from active traders to consultants, analysts, training or advertising.

The exchange rate depends on who is at the moment more: shares, crazies or idiots.
Andre Kostolani

How to cure?

Define your role in this business: who are you − a trader, a coach, an analyst, or an observer. If you want to manage emotions in trading − review the attitude towards the market, call the profit a salary, and not a combat trophy.

Do not count on world triumph, your goal is to work stably, and not to re-play the market. (see How to Control Your Emotions When Trading Stocks or Options).

Imitation

Symptoms: Dependence on other people's advice, techniques, analytics, trading signals, attempts to copy other people's transactions. A constant desire to shift responsibility for a trade decision to someone else: the classics of market, analysts, a colleague, a teacher.

Instead of analyzing your own mistakes, you are looking for new «forex gurus». Constant purchases of «super-profitable» «miracle» strategies, indicators, systems for automatic trading.

How to cure?


Develop your trading strategy, but it is reasonable to use all available analytics. Listen only to the advice that traders give with open monitoring of their real results.

Use only those automation tools (indicators, scripts, robots) that are designed or tested independently.


Aggression

Symptoms: Even small losses are perceived as a personal insult and provoke a trader to deal with an unreasonably large lot. Any market analysis is missing.

You will never reach your destination if you throw stones at each barking dog.
Sir Winston Leonard Spencer-Churchill

How cure?

No alcohol, drugs or antidepressants! Active use of profit trailing as confirmation of the correctness of your transaction.

Uncertainty

Symptoms: The learning process is too long. Constant market surveillance without opening deals; as a result, there is no profit or experience. Skipping trade signals, despite the use of a large number of technical tools. Constant distrust to the broker and technology.

How to curet?

Do not linger on a demo account. Identify a comfortable broker for yourself, assets, strategies and go to a small real account. Update the hardware − this will add reliability to your transactions. Make a trading plan with minimum goals and follow it. Communicate with successful and positive people (see here Emotions and trading psychology with James Chen).

Fatigue

Symptoms: Apathy. Inattention. Annoying even mention of the market, transactions, computer, people who are somehow connected with this topic. Loss of interest not only to trading, but also to ordinary life.

How to cure?

To optimize the workload taking into account age, health, individual psychotype: if necessary, a complete change in the external situation. Regular rest (with disconnection of the trading terminal!), full nutrition, communication with friends and relatives, and with other people − out of the market.

It helps the embodiment of profit in something real (material or spiritual), necessary for the common good or − just pleasant to you personally.

Laziness

Symptoms: Even after training and the first trading experience, the market for you or a usual hobby, this is constantly short of time, or is perceived as something dangerous, complex, and in principle − not necessary. I do not want to study, think, trade, answer for the result.

How to cure?

Stop trading: 50% of lost deposits are just those players who wanted a lot of money without adequate time and mental effort.

Look at it this way: you can invest. Hire a manager for your capital and invest in the same Forex, stock, or, for example, in real estate, an investment fund or a PAMM project. In extreme cases − put money in the bank. But do not try to trade on your own − the lazy one will never earn money on Forex.

And what is the result?

Emotions in trading, both positive and negative, have the property of accumulating. Positive − go into experience and profit, negative − at a loss and problems with the psyche.

Emotional self-control − is a necessary condition for survival in the modern market. Adequate trading goals and attitude to transactions as a normal job compensate you for lack of experience, technical knowledge and large initial capital. Raise a fighter in yourself and do not let the market break your emotional balance − it's bad not only for the wallet, but for health.

Try It Yourself

Trading psychology is one of the essential pillars of the Forex success, so even if you are an experienced trader, you shouldn’t dismiss a trading psychology advice.

Do you need a comfortable space in order to take control over your emotions and get prepared to the live trading?

Simply download Forex Tester 3 for free. In addition, you will receive 17 years of free historical data (easily downloadable straight from the software).

Grow your patience, boost your trading skills, learn to avoid psychological traps without drawing your live account.

Share your personal experience of controlling emotions in trading. Was this article useful for you? It is important for us to know your opinion – share in comments!