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Imagine you are browsing trading charts and come across USD/CAD; you see a potential opportunity.
In the H1 chart of USD/CAD, all you see are bullish signals. To confirm, you start looking for any major events online.
It turns out President Trump is planning to impose tariffs a few hours later. Before that, you bought some, hoping to make some profits.
As Trump imposed tariffs, your position in USD/CAD skyrocketed to 100% in minutes. Your adrenaline rushed. This is it!
You watch the screen, moving the pointer towards the exit position. You check the ROI; it’s 130%. Now, you are having second thoughts.
Greed kicked into your system. You waited, hoping for the greenback to rise.
Unexpectedly, the pair dipped slightly. You thought it was just a retracement. But the drop accelerated. ROI plummeted from 124% to 80%, 50%, and 20%.
Your heart races, and your mind whispers, Why is it falling? Isn’t my analysis right? The panic sets in. You froze.
Neither do you realise it was your emotions, nor do you know about controlling your emotions in trading. The idea of how to control emotions when trading.
By the time you snap out of the denial, it is too late. The ROI is -32%. You exited with regret and ashamed of yourself.
Now, you are emotionally devastated, wanting to recoup a lost trade. However, your wallet is drained. You kept staring at your negative daily PNL.
This trading scenario is very common among traders who do not have emotional discipline. It is an example of how unchecked emotions can beat your trading plan.
Here you can learn what you should do to manage your emotions before they start to control your trading decisions.
Keep reading to find out.
When trading, you cannot depend on emotions because they are not reliable and influence you to make impulsive decisions. While trading, you aim to make long-term profits. Emotions can interrupt your long-term trading plans.
Since emotions can influence your trading decisions, it is critical to take control of them before they induce impulsive decisions.
There are numerous ways you can control your emotions. The right strategy is understanding your emotions and building trading psychology to prevent your emotions from contradicting your trading journey.
The following are some of the easiest ways to control your emotions. Read to find out which are the emotions you have and what measures you need to take to control them.
Emotions occur naturally in our lives. You cannot avoid them, but you can control them. So first of all, you need to understand what your emotions are, such as fear, greed, anger, disappointment, excitement, despair, and many others.
Write down your emotions and the reason they get triggered in your journal. This practice will help you to realise what your emotions are and why they occur. It will help you to take responsibility for your actions instead of blaming them.
Recognise how these emotions arise and your reactions to them. Monitor these feelings to identify patterns and take proactive measures to manage your emotions to prevent them from influencing your trading decisions.
Once you have a clear idea of what your emotions are and how they affect your trading decisions, then you can use the right measures to prevent them.
Emotions can drive your mental peace as well as market volume. When traders react emotionally to market fluctuations, the market can be heavily influenced by emotional trading.
Most of the time, people respond emotionally to the market conditions consumed by fear, greed, hopelessness, and despair. This eventually results in significant financial losses most of the time.
To manage these emotions, you need to be emotionally tough. Although, you cannot become emotionally strong without experiencing these emotions. Even a professional trader may have gone through emotional turbulence during the early days of his/her career.
Becoming emotionally tough involves having flexibility, responsiveness, strength, and resilience to face the emotions. So you should inherit these abilities to manage emotions efficiently. The key is to take responsibility for your losses and never repeat the same mistakes.
During a market crisis, having these abilities will help you overcome your emotions and move past the potential crisis by implementing informed trading decisions.
Develop a trading plan by assessing your financial condition, risk tolerance, and other factors. Also, consider emotional factors when building your trading plan.
For example, if you tend to make more trades a day and eventually lose your capital at the end of the day, then you should create a rule to limit your trading activity, such as two or three trades a day. Whether you make a profit or loss, you should stop your trading upon the limit of the day to protect your capital.
Similarly, there are other emotional instances, such as fear of losing a profit or becoming greedy when you are already in profit. In these cases, you should create a solid stop loss and take profit in every trade to prevent missing out on making profits.
Set your own trading rules to control your emotions. Create a trading plan by combining all these trading rules. Staying consistent with your trading plan during emotionally weak times.
The objective of trading is to make profits. To accomplish this, you must establish goals. A trading plan without goals has no direction. While creating goals, it is important to make realistic goals that you can achieve.
Aiming for goals that are beyond your reach can be harder to achieve and eventually lead to frustration and hopelessness, which could trigger you to make careless trading decisions. Clear and well-defined goals will help to structure your trading plan.
Goals help to build discipline and consistency that can mitigate emotional biases during market uncertainty. Setting goals like “one or two trades a day” or “stop trading after a 2% loss or profit” can limit exposure to emotionally draining situations.
Avoid having the mindset of becoming rich quickly by trying to capitalise on the trend because wealth building is a long-term activity, and you can guarantee yourself a successful trading journey by setting clear goals and a disciplined trading strategy.
When you are trading as a beginner, it is very common to be influenced by emotions like fear and greed. Having no control over your emotions can result in significant losses. So, you must work on dealing with these emotions to limit their exposure to market fluctuations.
One of the common practices that you should do when you are emotionally vulnerable is to practice breathing exercises. Inhaling and exhaling deep breaths can help you calm your nerves and realise what you are going through.
This will help you to bring you back to your senses and implement informed market decisions to limit the exposure of your capital to an ongoing loss. In addition, you can also do daily meditation to help your emotional toughness grow bigger than vulnerability.
Trading with emotions is a psychological game. While you may make profits by chasing trends out of fear of missing out, you cannot rely on luck every time for timely entry. Sometimes, it could backfire and cause you to suffer significant losses.
If you have difficulty managing your emotions and trade carelessly, you should focus on risk management strategies.
Setting a risk-reward ratio and planning to exit when the price reaches your targeted risk or profit level using stop loss and take profit can help you execute trades without emotional conflicts.
Always try to plan your trades and execute them at predetermined positions when you believe there is an opportunity. This will help you capture profits, whether they are small or large.
Do not panic if you miss out on an opportunity or your position is at risk. Losing is part of the trading journey. However, you can determine how much you can afford to lose by analysing your risk tolerance and exiting the trade before it heavily impacts your capital.
Excessive trading can be mentally exhausting. It demands a clear strategy and critical thinking for success, along with a calm mindset to build a successful trading portfolio.
Additionally, prolonged screen time can strain both your mind and eyes, so it’s essential to take breaks between trades. Use these breaks to relax your mind and enhance your efficiency.
Surround yourself with people who have experience and knowledge in trading to build a solid support system. Share your trading ideas and trading plans with them. They will help you identify emotionally triggering areas and review your trading plans.
Staying connected with a group of traders will also help you realise that you are not alone, as everyone struggles with fear, greed, despair, hopelessness, and others.
Following their advice and footsteps may help you gain control of your emotions while trading. However, follow your trading plan under any circumstances.
The key to becoming consistent in trading is to follow the trading plan despite the situation. Whether you suffer a huge loss or you were able to capture a small profit from a huge opportunity, you need to face it and take responsibility for it.
Trading opportunities come and go. You may miss out on a huge trading opportunity because of your planned risk-reward ratio. But this does not mean that opportunities will not arise. Without a doubt, profit-making opportunities are going to come.
Sticking to the trading plan will help you capitalise on every opportunity in the long journey, whether it is big or small.
In the trading world, if you do not have a consistent plan, then you are bound to lose motivation to trade as you face losses. If you are inconsistent in following a trading plan or struggle to control fear and greed in trading despite taking proactive measures, then you should try algorithmic trading.
With the evolution of technology, now you can input algorithmic expressions to function your trading plan without any human assistance. However, you may have to create an algorithmic trading formula. Other than that, everything is automated.
Algorithmic trading is one of the best measures to eliminate emotions in trading. All you need to do is incorporate it into your trading strategy and let it manage your trading journey based on market conditions.
Algorithmic trading eliminates emotional vulnerability, allowing traders to capitalise on any opportunity that arises without any emotional conflicts.
There are several forms of emotions that a trader can have, which can also impact their trading journey. Some of the most common types of emotions that influence trading decisions are given below:
In addition to these, there are numerous emotions such as hope, regret, impatience, and others. Some of these emotions can mix with each other and may have a domino effect on traders.
Trading psychology is as important to the trading plan as technical and fundamental analysis are. Trading psychology refers to the mental and emotional state of a trader that determines the trader’s journey.
A trader with good trading psychology will have a better understanding of how to manage their emotions in uncertain situations. Meanwhile, a trader with poor trading psychology is more likely to make impulsive trading decisions during unusual circumstances.
Having a good trading psychology is like having the key to emotionless trading. Professional experts are so good at managing their emotions that it may look like they have no emotions in them. But in reality, they are simply sticking to their trading plan despite their emotions.
Emotion is a natural reaction that you cannot prevent from experiencing. You can control your emotions in a certain way so you can manage them to make informed decisions. You can practice breathing exercises and meditation to optimise your emotions efficiently. If you cannot control them, the best way is to automate your decisions by using stop loss and take profits to limit your loss and capture guaranteed profits.
The first step in avoiding emotional conflicts is to execute trade decisions using stop loss and take profit orders, which can help to calm your emotions by presetting your exit points. Becoming an emotionless trader is a long journey of dedication, patience, and continuous trading according to the plan. Regular trading with risk management strategies can gradually increase emotional toughness and help you manage your emotions more effectively.
Trading psychology is the emotional state of a person when trading. Poor trading psychology can lead to impulsive decisions that may result in losses. Controlling trading psychology means not letting emotional decisions impact trading decisions.
Sticking to a trading plan is the right way to control your emotions from making your decisions. Take profit and stop loss orders can execute trading decisions without being influenced by emotions.
Emotions are part of our human body. As a result, we cannot avoid it as much as we want. But learning to control your emotions when trading is what makes a successful trader different from others.
Emotions like fear, greed, regret, excitement, and impatience can all influence your decision-making ability and result in impulsive and irrational trades. The losses from these trades could further impact your emotional vulnerability.
However, any trader can navigate emotional vulnerability by understanding the emotional situation, defining a trading plan, developing emotional discipline, implementing risk management decisions, taking breaks, and automating trades, which can reduce or eliminate emotional vulnerability when trading.
Having a strong support system to address and acknowledge your concerns can further boost your confidence and make you feel that you are not alone in this journey.
When trading, mastering emotional toughness is as important as succeeding in technical and fundamental analysis. You can follow these strict measures to develop a solid trading psychology that could help you take control and manage your emotions effectively.
Disclaimer: The information provided in this blog is for educational and informational purposes only and should not be considered as financial or investment advice. Stock market investments are subject to market risks, and past performance is not indicative of future results. Readers are encouraged to do their own research and consult with a licensed financial advisor before making any investment decisions. The author and publisher are not liable for any financial losses or damages incurred from following the information provided in this blog.
Hashim Manikfan
Hashim Manikfan is a professional financial content writer with extensive experience in creating engaging and informative articles on a wide range of financial topics. With academic background in Communication and Journalism, Hashim has published numerous articles aimed at educating readers on essential financial principles. His work covers areas such as financial markets, investment strategies, economic trends, and more. His writing style ensures complex topics are accessible and interesting, making financial literacy attainable for a broad audience.
