Often times traders have their own plans when it comes to trading. They have different strategies, methods, and techniques that they follow strictly, hoping that these plans they’ve researched and studied would give them the profits they are expecting for their investments. It might be partly true that strategies can help boost your profits, but there is another major aspect that can also decide on whether a trade can be a gratifying success or an utter failure – EMOTIONS. A trader may have an efficient trading strategy but if overwhelmed with emotions like arrogance, fear, and anxiety, there is a high probability of failure.
It is important to be mindful when you trade. In trading, you compete against the world’s sharpest minds, commissions and slippages are against you, and above all, you deal with your emotions. As a trader, remember that emotions cannot be detached from your decisions. Decision-making includes dealing with emotions. No matter which market a trader belongs to (the stock market, commodities market, forex market, etc.) he/she cannot avoid dealing with emotions. Thus, it is a priority to understand how emotions influence the way traders think and behave during trading.
There are enormous emotional temptations that various markets offer. These temptations force traders to overthink the expected measure of both profit and loss. Hence, a clouded judgment could inspire incompetence from self-doubt; it makes you picture of greedy victories that leads to recklessness, indecisive confidence, or of disheartening failures that instill overwhelming fear and loss of confidence in your plans. For example, most newbies feel that they are very intelligent after a number of winning streaks. They take bigger risks and start to depart from their strategies. In the event of losing streaks, the amount of risk they are willing to take reduces greatly, leading to greater damage to their accounts.
Only a few survivors realize that the main trouble is not in the trading methods, nor is it in the planning of the trading methods. Rather, it is in their way of thinking. They can change and become successful traders. Here are some ways to deal with the emotional challenges we all experience when trading in financial markets:
Emotions during a losing position
No matter how efficient or tested a strategy is there will always be times that it will not provide you your expected profit. Rather than added income, it will only bring you further loss. And when losses start to pile up, emotions will then disrupt your awareness of reality. It interferes with our thought process which then affects memory and reasonable decision-making. One way to deal with this is to quickly separate from the cause of pain. Instead of dealing with the negative outcome, it is best to avoid getting into this kind of situation. As traders, experiencing loss is inevitable but we can control the magnitude of our losses.
Losing focus on the game plan
Amateurs assume that successful traders are geniuses and gifted in trading. They think that these traders do not lose profits, and use their own intuition when they speculate the market. This is a big misconception. Successful traders do not guess and rely on their intuition when trading. More than any traders, successful traders are the ones who have experienced many losses. As a result, they integrate these losses which contribute to a better, tested and efficient strategy. The difference between amateurs and experienced traders is that the experienced ones visualize in long-term returns on investments rather than amateurs who disregard them.
The urge to take money during great opportunities
The market is very active; with just one turn, profits can turn into losses. Traders are aware of these unexpected market fluctuations. Thus, when a winning trade shows up, it is then followed with impatience and fear, which may influence the flow of your strategy. Be conscious and resist the temptations to take money. Do not be opportunistic. Closing the trade too early can destroy your strategy and stop it from reaching its potential.
Dealing with regrets
There are situations when a trader could have made a number of profits but failed to do so. This results to regret–an emotion that is highly destructive; it affects and influences the thought process. Traders who are overwhelmed with regret tend to be more aggressive in their next trade. As a result, they take a higher risk which leads to a bigger loss. As a trader, it is important to be calm and accept that nobody can predict the future. Be calm, sit back, and contemplate what happened. Consider the areas of opportunities and come up with a careful resolution for future trades. Let the facts drive your decisions, not your overwhelming emotions.