Trading Psychology: Managing Your Emotions

This is the first article in a four part series. Managing your emotions as a trader. No matter how experienced and how successful you are as a trader your emotions are something you will never get rid of. It is something that will always be a part of you.

Every beginner trader asks the same question. “How do I get rid of my emotions”, the simple answer is you don’t, you’re not a robot. However you can learn to understand and control your emotions and that’s how you’re going to improve as a trader and as a person in general.

I will start by identifying the most common emotions everyone goes through during trading and how to deal with them.

Fear

Fear is probably the number one emotion every trader feels and it’s understandable. It is human nature to be afraid, you see or feel danger, you go in the opposite direction to avoid it.

It’s also a big part of every trader. Whether it’s a fear of losing money, fear of missing out a trade or a simple fear of being wrong. You will always feel some type of fear so the best way to control it is to face it.

Fear of losing money

You gotta understand, trading is a game of risk. You can’t make money without risking money. If losing money is something you’re afraid of, you shouldn’t be trading. Most people who deal with this simply risk too much or they don’t have enough capital to trade with. If that’s you, you shouldn’t be trading. Over 90% of traders never make it, as soon as you deposit money into your account consider it gone. That’s how you limit your fear of losing it.

Fear of missing out (FOMO)

It’s another very common emotion most beginners deal with. Let’s say you see the price of Bitcoin flying to the moon, everyone is going crazy and everyone starts buying then price dumps and you’re left holding the bag. That’s because you DO NOT FOMO into a trade, if you see the price flying it’s already too late to enter. Just sit down, relax and wait for an opportunity to re-enter. There are opportunities every single day, if you miss a trade or two it will not kill you, you’re better off waiting for the next set up instead of entering at a bad price.

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Fear of entering trades / being wrong

Most of your fear of entering trades comes from the fact that you’re risking too much money which you’re afraid of losing. The simple solution to this is to risk less, that way you don’t care if you win or lose. It does make the trading a bit boring but that’s the point, real trading should be boring and the percentages you make or lose should be so insignificant you don’t care about the outcome of the trade. Another reason for being afraid of being wrong is because of your ego. Nobody likes to lose, especially if your ego is telling you, you’re better or that you deserve to win. There’s no easy fix for your ego, but all I can say is throw that shit out the window or the markets will eat you alive.

Greed

As you get better and start making money trading, greed will definitely kick in. This is something I personally struggled with the most. I never had trouble making money trading, even when I had no idea what I was doing, but I did always struggle keeping the money because I left the trade open for too long hoping for that extra $$. This is something that will always accompany you in your trading journey, the only thing you can do is try to ignore the urge to make more money and focus on your actual plan.

This goes back to what I said earlier, lower your risk to the point where your wins and losses are insignificant to you. This way you stop focusing on the outcome of the trade and focus on the process instead. Your wins will stack up, your account will compound and the money will come as the results, don’t force it.

Something you can also do to stop your greed or other emotions from kicking in is to set strict stop loss and take profit levels and just let the market hit whichever one it wants. No emotions there, just automating the process and limiting you watching the charts all the time.

Hope & Intuition

How often have you left a losing trade running because you “hoped” it would come back into profit but it never did and you blew your account…

Yeah, that’s why most people blow accounts, because they hope the markets will bless their losing trades with profit. Or you hope your winning trade goes further into profit but then it dumps all of a sudden and you lose all your money.

As soon as you start hoping for an outcome, get out. Close your trades, close the charts and leave because nothing good will come from your “hope”.

Hope and intuition come hand in hand, you’re either hoping or your intuition is telling you something will happen. The truth is, most people will never reach the knowledge and the understanding to know where the markets will go so whatever your intuition is telling you, it’s not going to happen.

Impatience

90% of your impatience comes from you sitting in front of the screen forcing trades because you see things that aren’t there. It’s a natural thing our brains do the longer we look at something. Our brain is designed to look for patterns, the longer you look at one thing the more patterns you will see. It doesn’t mean they are there, it just means your brain made you come up with it.

That is why you don’t want to be looking at the charts every chance you get. Limit your screen time. Draw your setups, set your alerts and just wait for price to come to you. Don’t force yourself to trade just for the sake of trading or because you’re bored. There are thousands of opportunities every single day. You just need to look for the one that makes you money.

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  • To Summarise

    • Limit your risk to the point where wins and losses are insignificant.
    • Automating the trading process using stops and take profits is a good way to remove emotions out of trading.
    • Markets will eat you alive if you think you’re better than them.
    • As soon as you start hoping for an outcome of your trade, close it.
    • Limit your screen time and wait for price to come to you, don’t force trades that aren’t there.
    • There are thousands of opportunities every single day, you just need one.
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