Controlling Your Emotions When Trading
There have been many discussion and studies on so called trader’s mindset. A trader approaches the market every day with a unique mindset consisting of beliefs and emotions. Many a new trader will start trading believing something that might simply not apply in real-life trading situations. Another mistake is getting too heated up, and missing the chance to take profits and bail out. In a nutshell, their trading failures derive from their misconceptions. They enter the world of trading with inaccurate set of beliefs that give way to unhealthy emotions. What can be done about it?
The Telltale Signs
Luckily, proper education, experience and guidance can do wonders in helping these misled novice traders to turn their losses into gains. Beginner investors usually realise that they need to change their approach after initial large losses or when they figure out that no matter how hard they work, they still keep losing money. What they though is a winning formula needn’t always work, so at one point they come to conclusion that their emotions are pitted against them, instead of leading them through the business.
What Went Wrong?
Have you ever been sitting idle while witnessing the market rally almost 100% off the price from five years ago? You have the urge to buy, and you are frustrated at the same time as others are making profits that you are missing. A lot of novice traders have felt this way, and not without a reason. Every trader has seen the market grow much higher than anyone expected. Imagine how hard it must be for the day trader to experience a trending market on a daily basis with almost no entry opportunity. It is hard, but you as a trader have to learn to sit on your hands. Waiting for the right entry is what separates winners from losers.
Learning to Control Emotions
When they hit the wall, there are usually two ways for these traders. They either quit trading for good and start looking for their career opportunities elsewhere, or they start looking for help. I hope you won’t take the red pill if you find yourself in a situation like that. What you need is to ask for help from a successful trader. What you learn at this point will likely sign your trader destiny. It is important to learn the techniques of controlling your emotions while trading.
Trading is Business Like Any Other
If you are losing money, maybe the reason lays in the fact that you were doing it completely wrong – trading blind with no real goal or direction. To trade for a company you work for is one thing but to trade for yourself in front of the screen is something else. You should start looking at trading as your personal business venture. Come up with a business plan, establish distinct and achievable goals and include daily activities that will keep your emotions aside. In this way you can remove your emotions from the vicious “fear and greed cycle”. If you do so, you will be less likely to pull the wrong moves or have the urge to make a move at all costs.
Negative Emotions and Trading
This set of beliefs and emotion’s is called the trader’s mindset. It is characterised by an attitude that a trader mustn’t become dependent on his or her negative emotions. It is these negotiable emotions that a successful trader wants to exploit, counting on the others to lose their nerves. As they say, the hustle never ends. When you win, someone must lose. That is the reality of short term trading, and especially true when stock liquidity is low, like when you trade OTCs which are getting extremely hard to flip quickly. What separates successful traders from losers is that they are very calm and methodical about it. That is the reason why they are making money even when everyone else is losing.
If you achieve the trader’s mindset perk, you will quickly learn how to master your responses to your emotions, as well as emotions of other traders. You can start developing the trader’s mindset by using stops and holding on to them. Getting used to stops will help you get out of the market on your terms, before you let your emotions blur your vision and drag you into staying in the trade longer than needed.
The trader who is likely to reap profits is the one who can stay calm while following the market, including its ups and downs. A true master of emotion control will always be to capitalise on exploiting the traders who are bailing out to early, because they are letting their emotions run their trade.
John Stone spent a better part of his life working as a business consultant. He is currently the editor of BizzmarkBlog. Always on the move and keeping up with the latest developments in technology, through years of experience he became a devout believer in the notion that form should always follow function and that developing the ability to think outside of the box is a prerequisite of being a successful entrepreneur. In his spare time he enjoys playing guitar and watching Formula 1.
For more financial tips and tricks to optimise your financial lifestyle, visit imoney.sg and learn all the best moves to make with your money.