How to Remove Destructive Emotions When You’re Trading

07 Feb How to Remove Destructive Emotions When You’re Trading

A lot of traits contribute towards a successful trader but one, the ability to understand and manage your own emotions, is arguably the most valuable as it allows an individual to ensure their mind is clear. As humans, managing our emotions while trading can be difficult because we will inevitably encounter a wide array of thoughts and feelings – these may directly relate to our trades (happiness, frustration, fear), or may relate to external matters in our personal lives. What is important however, is that you don’t necessarily need to eliminate these emotions, rather, it is critical you understand what drives them and how to manage accordingly.

Understanding trading momentum is an invaluable method of self-control – your risk appetite may vary from the next trader but you don’t need to open a position just for the sake of it, you need to be selective and wait for the right opportunities. If you’re feeling stressed or not quite on top of your trades, take a break instead of chasing another trade in the hope it will solve all your problems – if anything, additional losses will only compound your emotions. Conversely, if you’re feeling ‘in the zone’, push harder with your trading but remain wary of when to take your profits – too much confidence can allow you to overlook signals and make critical errors.

Trader Emotions

Detaching yourself from the instrument you are trading is critical – sometimes we develop an association with an equity because we love their product; perhaps we’ve heard a lot about it in the media; maybe we undertook copious amounts of research. These factors can impair our decision-making process, therefore eliminating the emotional connection is crucial. When devising a game plan, it is important you understand it may not succeed straight away, and have the patience to stick with it – only once you’ve allowed your plan to be tested adequately should you be in a position to consider amendments.

If you don’t feel as though you can manage your emotions or abide by a system, develop a systemized approach to trade. The simplest method is to develop a checklist or written procedure that details the particular setup you are looking for, and the requirements to enter and exit the position. With this type of discipline, and that mentioned above, you’re set to look at every trade on an objective basis, increasing the likelihood of your success.

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