Do you sometimes find yourself trading in a bad or grumpy mood?
It happens to the best of us, but negative emotions do have a real impact on your perception of yourself as well as your trading and your decisions.
This article will provide tips on how to break the negative spiral and how you can trade with a more balanced mindset.
Why Negative Emotions Create Negative Trading
Not everyone is convinced that negativity in itself is a negative aspect; they believe it's a useful way to release internal pressure.
I myself am not a psychologist, but I'm willing to share my experience.
According to Matthieu Ricard and his book Happiness –- a Guide to Developing Life's Most Important Skill, you are able to get rid of negative emotions consistently. He explains that "negative emotions are transitory mental events that can be obliterated by their opposites, positive emotions, acting as antidotes."*
Does it happen overnight without any effort? No. It requires mental training, just like when we go to the gym to train the body or study at night to pass an exam.
Luckily, Ricard offers three steps how anyone, including traders, can improve their mental balance and well-being.
You might wonder why this is important for me and other traders.
From my experience, negative emotions are often the key element that leads to a string of bad decisions.
For instance, if you feel annoyed or sad when looking at the 1-hour EUR/USD chart because it reminds you of your unlucky loss 2 days ago, it will influence your focus and your decision-making.
Time to discuss the solutions!
Trading Psychology: Creating a Positive Trader's Mindset
Recognising negative emotions will not be sufficient to solve the problem. Nor will hiding them. A more proactive approach is needed, according to Ricard, with a "new way to manage your thoughts."*
His book mentions three solutions:
- The use of antidotes. Antidote means medicine or something that counteracts an unpleasant feeling or situation. The positive antidote will basically push away the negative thinking.
- Liberation, or freeing emotions. This technique means that you critically face the thoughts when they appear and dismantle their harm by realising that they will never hurt you.
- Utilisation, or using emotions for positive change. The last concept is to use negative emotions as a catalyst for change and driving force for improvement.
Applying all three methods will help traders free their mindset. It will allow them to counterbalance the emotional chains from their thought and help them focus on their decisions more productively.
How to Learn from Your Trade Setups
The best advice that I can provide is to keep happy thoughts during, before, and after trading. Sure, some trades or days will turn into losses, but your trading capital shouldn't be fully lost if you use proper risk management.
A positive mindset is better equipped to recognise opportunities, take informed trading decisions, and counteract against negative emotions, such as fear and anger.
This doesn't mean that traders cannot learn from their mistakes. Having a positive mindset does not equal forgetting everything immediately. It means:
- learning from experience or mistakes and improve your trading decisions;
- learning to let go of your mistakes and continue with an open mindset.
Trading psychology is a field that requires attention. Nenad and I address these aspects in our live webinars courtesy of Admiral Markets who offer:
- access to the markets with very low fees;
- the best technology on the market – MetaTrader 4 Supreme Edition.
Cheers and safe trading,
Happiness – a Guide to Developing Life's Most Important Skill by Matthieu Ricard, publisher Atlantic Books in London, 2003, page 123
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