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How to Balance Out Emotions in Trading

July 05, 2018 16:11

Trading the markets can be a very intensive occupation, part-time job, or hobby because we have to interpret our emotions and the markets consistently. Keeping track of price movements, setting up trade plans and executing setups are all activities which drain our focus, patience and energy. However, this only occurs if we don't correctly maintain our life balance.

The life of a trader, at times, shares similarities with a roller coaster ride. We see many peaks and valleys, witness many scary and funny moments, and ultimately expect a safe journey. These ups and downs, win streaks, drawdowns, and good and bad trades are all part of our daily/weekly routine.

This can work perfectly well for months on end. In fact, being in a state of 'flow' helps the concentration, and makes everyone work more efficiently. Ultimately we risk running out of steam, and letting our focus slip if we do not recognise the symptoms on time.

What kind of signs? Well, if you see charts and price movements in your dreams, or have nightmares where one trade goes terrible and wipes out half your account, then you might be staring at the charts a tad too much. Running out of patience with trades and entering revenge trades are of course, also signs of focus deterioration.

Stay Away From Negativity

Don't fall into the trap of bad emotions. By developing bad habits, you are making them a daily routine, and you will not improve. Remember, your daily routine is what will differentiate you from a trader with a good plan, from a trader with a bad one, or even one with no plan at all.

Don't Be Overconfident

Now you might say, "this doesn't apply to me, I am a very confident trader". That's great because confidence is needed if you want to produce good results. However, overconfidence may lead to failure. Psychologists observe that most people are overconfident; they tend to overestimate the precision of their knowledge and the level of their abilities.

Have you ever caught yourself thinking that you might be trading based on your beliefs? Overconfident traders are often so sure that what they believe is right, and are more likely to act on their feelings. The result is overtrading.

Overconfidence and lack of positive habits are bad behavioural patterns. Try developing the skills to identify and change the way your mind works. Maybe you will need to change your routine. OK do it! ASAP! You will never break the habit until you decide to break it.

Develop a Trading Mindset

Our mindset is important. If you use the approach: "I need to make money from this", or "I want to quit my day job and become a full-time Forex trader", then you are developing an improper trader's mindset, and you are again moving towards developing bad habits. Less is more in the Forex market. If you are receiving bad results, you might think that you aren't putting in enough time or perhaps not trying hard enough.

That would naturally lead you to push harder and put in more time studying and analysing various systems, searching for a holy grail, and perhaps even revenge trading. Bad idea! Emotional trading may make you lose your focus, lose your nerves and fail in trading. We can also compare trading success to that of human relationship patterns.

The best relationships will not require much work on behalf of either individual, once a certain level of understanding has been achieved. Trading success comes from discipline. You should always have a routine and don't let failures touch you. If you do, you will feel like a failure.

Develop Positive Habits

Don't forget to develop positive habits, because this will help you to succeed. Don't be afraid of losing. It has always been part of trading. If you start doing things right, you will soon realise that your wins have overcome your losses and in return, it will make you feel great.

Practise Daily Routines

A few critical yet straightforward daily routines already do wonders. Moving at a minimum of 30 minutes per day, drinking a steady dose of water, performing non-pc related hobbies, relaxing, meditating - these all help keep the mind and body focused today, tomorrow and beyond.

Occasionally taking a day off from trading is also needed. This provides a mental break and allows traders to regain their focus. A good day for that could be a trading day with an NFP (Non-Farm Payroll) news event or the FOMC (The Federal Open Market Committee) statement.

In Forex trading - less is more. Trying less and putting in less time doing technical or fundamental analyses might improve your trading. That is why analysts are there - to help you and give you the cues for direction, trend, targets and entries.

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.