Learn to Trade

Is It Really Important to Keep Your Cool When Trading?

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Being rational and emotionally detached is essential if you want to consistently profitable. 

Most new traders ride an emotional rollercoaster and feel like the odds are with them in a win, but feel completely down when experiencing a loss.  

Meanwhile, professional traders stay calm and relaxed even after a series of losses. They have the mental fortitude to not let the natural ups and downs of the market affect them emotionally. 

If you want to be a profitable trader, you’ll want to be the same and stay as composed and as unemotional as possible.

Now we know that being unemotional is impossible, but the way that you respond to it is what’s important.  

Even professional traders will sometimes lose composure and let emotions take charge. As humans, this is a natural thing and many traders will start doubting their methods and strategies when things go wrong. 

On the other hand, when things are going well, it is normal to feel excited and this is where traders feel invincible then overconfidence takes over and keeps on taking more trades which will lead to further problems due to over trading. 

Every time things start going your way, you will start feeling good and it will cloud your judgement. You feel like the market will stay that way for a specific period of time and you want to keep taking advantage of that sentiment but you should also put in mind that the market moves in phases and the move that you are going for may already exhausted and the trade might go against you. 

Emotions usually take over in most new traders and they usually take too much risk in a single trade and risk management goes out the door when emotional euphoria takes over.  

If that “big risk” turns successful, bliss follows the victory. But with a disastrous loss on that “big risk”, the joy transforms in a feeling of utter failure. 

The key to minimizing losses is proper risk management. Small loses can easily be absorbed and can be easily won over rather than amassing big losses.   

Like what we said in our previous posts, you should always treat trading as a business and not like a casino. Just like any reputable business, it should be run on proper planning, not on pure emotions. The objective here is to make rational trading decisions. 

What are some of the things to remember to help you control your emotions? 

You Can’t Win Them All  

You should always remember that in forex trading, losing is part of the game. If you think than forex trading is a get-rich-quick scheme, then maybe forex trading is not for you. 

You will win some and you’ll lose some and every trader knows this. That’s why it is important to have a specific goal in mind on how much you want to earn in a weekly/monthly basis based on your trading performance to keep you from over trading.  

Only Trade Money That You Can Afford To Lose   

Always remember to only trade money that you won’t need. That means that you should still be able to pay for any daily expenses, bills and such even if losing all of it.

Don’t risk money you can’t afford to lose. Be ready to handle losses because they will come. That’s just how the market works. 

Don’t Over-Trade  

Try not too over-trade too much after a win streak. When having a win-streak, it is normal to experience an emotional euphoria and this may lead you to keep on placing trades then suddenly you realize that your luck just ran out because your trades are starting to go against you.  

This is why we suggest that you have a specific weekly/monthly goal so that once you reached a specific goal, you would know when to stop and keep yourself from over-trading.  

Emotional stability, matched with proper risk management, is the name of the game.  

Trading can cause you to become emotional and lose control but trading in a rational mind can minimize all the risks that emotions can bring and you will realize that making rational decisions is more profitable than making a trade while clouded with emotions.  

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Learn to Trade Pty Ltd (ACN:138178542, AFSL:339557) provides general information and educational courses and materials only. This is not an offer to buy/sell financial products. We do not provide personal advice nor do we consider the needs, objectives or circumstances of any individual.  Financial products are complex and all entail risk of loss. Over-the-counter derivative and foreign exchange products are considered speculative because they are highly leveraged and carry risk of loss beyond your initial investment, hence should only be traded with capital you can afford to lose. Please ensure you obtain professional advice to ensure trading or investing in any financial products is suitable for your circumstances, and ensure you obtain, read and understand any applicable offer document 

 

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