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Emotional Trading

Emotional Trading

 

It might surprise you, but a trader's biggest enemy is not a falling stock or an incorrect prediction, it is their own emotions. In order to be successful in trading the number one rule above all else is Keep Emotions Out of It!

This is much easier said than done, since we all have the same natural reactions to seeing our investments fail or succeed. That is why we are going to break down exactly how to avoid the pitfall of emotion

Do your homework

Trading should not be regarded as a hobby. At the end of the day, there is no escaping the fact that a successful trader is an informed trader. When building your strategy, and executing it, you should know what it is you are looking to achieve and define your desired risk level.  The market is essentially a reflection of mass human behavior. It is important to identify trends and adjust accordingly. There is a whole host of technical and fundamental analysis available to traders that should not be overlooked. Knowing what you want and devising a consistent strategy to achieve it is a must.

Have a strategy – and stick to it!

Each trader has their own style and target. Once you have done your homework and figured out what it is you want to get out of your trading, it is time to build your strategy. Are you short term or long term? What kind of assets do you want to trade? What trade type is most suitable to your desired time frame? All of these and more are to be defined in your strategy.

Once you have a strategy, DO NOT fall into the traps of fear or greed. Remember your strategy is there for a reason and do not abandon it at the first sign of uncertainty. It is true that every once in a while, the market will do something unexpected, and trading is not a venture with a 100% success rate but a hiccup or an anomaly are no reason to get sidetracked. Be open minded to adjust yourself to a forming trend, but don't forget your end game.

Identify Fear

Fear is a natural reaction we all have even if we don't always recognize it. This is where sticking to your strategy can save you a lot of heartache. Remember the market is never static, and that it is critical to keep dips or rises in proportionate consideration. That flashing red of a dropping asset send our fear into overdrive, don't be fooled. The key here is to keep cool, stick to the plan, and to remember that your emotions cannot dictate your decisions.  

Don't get greedy

The green-eyed monster is a trader's worst enemy. It is easy to want to milk every last drop out of a winning trade, or to jump out of a trade the second it seems to fall, but these will always backfire on you. Do not get too emotionally attached to a trade. You must remain objective to recognize when it is time to quit with a profit, or to cut your losses. Be aware of the desire that exists in all of us to get just a little bit more, and work consciously to overcome it. Again, this is when having a plan in place and sticking to it can save you. 

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