Is It Really Important to Keep Your Cool When Trading?
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.
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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Information on this page is solely for educational purposes only and is not in any way a recommendation to buy or sell certain assets. You should do your thorough research before investing in any type of asset. Learn to trade does not fully guarantee that this information is free from errors or misstatements. It also does not ensure that the information is completely timely. Investing in the Foreign Exchange Market involves a great deal of risk, resulting in the loss of a portion or your full investment. All risks, losses, and costs associated with investing, including total loss of principal and emotional distress, are your responsibility.