How to Prevent Emotional Trading
How to Prevent Emotional Trading
Emotions have absolutely no place in trading. All emotions do is ruin a trader’s mindset. Trading, whether Forex, stocks, cryptocurrencies, or otherwise, is about reason, logic, and solid planning. Today, we will provide you with some crucial tips on how to prevent emotional trading from draining your bank account.
Try to Keep Trades Small
One thing that you can do to prevent emotional trading on your behalf, especially as a beginner, is to limit the size of your trades. The larger the trades that you place, the more emotionally charged the situation is going to be.
Of course, nobody likes losing money, and the more money lost, the worse it is. So, if you place a $10,000 trade, it’s going to be super stressful, way more stressful than a $100 trade.
Now, as you get better and more confident in your abilities, those larger trades will become less stressful. However, for the time being, to keep your emotions in check, it’s best to go with smaller trades.
Get Rid of Your Ego
Yet another thing that will help prevent emotional trading is to park your ego at the door, so to speak. Yes, your ego is a part of your emotional state. For instance, if you win a few trades in a row and make some good money, it might get to your head.
In other words, a series of wins can artificially overinflate your ego. It comes to the point where you are falsely confident, and eventually you’ll start being reckless.
On the other hand, if you lose several trades, and you allow this to get to your head, it may make you far too cautious and scared of trading. Whether trading inflates or deflates your ego, both results lead to losing more trades. Therefore, to prevent emotional trading and losses, leave your ego out of it.
Educate Yourself
One of the best things that you can do to prevent emotional trading is to get educated on the matter. Simply put, the more you know about Forex, stocks, and other markets, the less you need to rely on your gut feeling.
Of course, your gut feeling has to do with your emotions, but gut feelings can often be wrong. Trading without a solid education and a good knowledge base is a sure-fire way to end up losing, and this will only make you more emotional.
It’s a vicious cycle, one that you need to prevent from occurring in the first place. The more you know, the more confident you can be in your abilities. Therefore, if you are confident, when you place trades, you won’t be very worried about them. It all comes down to knowing what you are doing.
Use a Solid Strategy
Related to the previous point, something else that you can do to prevent emotional trading is to find, refine, and practice a good trading strategy, or even several of them. The fact of the matter is that no professional trader just places trades on a whim.
Every good trader has a good strategy behind them. If you use a time tested strategy that is proven to produce positive results on a consistent basis, then you can be confident in your trades. The better your strategy, and the better you are at its execution, the less emotional this whole process will be.
Only Trade What You Can Afford to Lose
Perhaps one of the biggest mistakes that newbie traders make is to trade with money that they cannot afford to lose. Folks, if you gamble with your rent money, your school tuition, your money that you need to put food on the table, it is automatically going to create stress and an emotionally charged situation.
If you do this, you absolutely need every trade to go your way. If one trade goes south, oops, you just lost your only way to pay this month’s rent.
To help keep emotions to a minimum, you need to only trade with money that you can comfortably afford to lose. In the event that you do lose some money, if you didn’t need it to survive, it’s not going to affect your mental state in any significant way.
Start Taking Care of Yourself
One of the most important things for you to do if you want to prevent emotional trading is to actually take care of yourself. By this, we mean make sure that you are in a good mental state, as well as in good physical health.
The reality is that there are many things that can cause you to become emotional, and they will all affect your ability to trade in a rational and reasonable manner. If you are super depressed, stressed out, anxious, tired, malnourished, or anything else of the sort, it’s going to affect your mental state and your emotions.
If you start the day of trading already stressed out, you can probably guess that things aren’t going to go your way. So, just take care of yourself, take a personal mental health day, drink a hot tea, and take a bubble bath.
Start Getting Used to Risk & Loss
Yet another way to prevent emotional trading is to get used to the idea of risking your money and potentially losing it. Folks, this is the name of the game.
You are gambling your money, albeit in a rational and analytical way, but in a sense, it is still gambling, and when you gamble, there is always a chance that things won’t go your way.
You won’t ever be a profitable and confident trader if you cannot accept the fact that sometimes you will lose, undoubtedly. The best of the best traders can put their emotions aside, suck it up, and keep going. This is the nature of trading.
It’s About Quality, not Quantity
The other thing that we want to stress here is that trading is about quality, not quantity. Simply put, if you put research and effort into finding the best possible trades, you can be reasonably confident in them.
However, if you just place a ton of trades and hope for the best, it’s going to be super stressful and emotional. This is always the case, no matter what, quality is always better than quantity.
How to Prevent Emotional Trading – Final Thoughts
There you have it folks, some great ways to prevent emotional trading from dictating your trading game. If you truly want to become a profitable trader, we recommend taking a look at the Income Mentor Box Day Trading Academy, one of the world’s most respected online schools for aspiring traders.
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