Planning out your approach is key if you want to keep negative emotions out of your trading. The old adage ‘Failing to plan is planning to fail,’ can really hold true in financial markets.
As traders, there isn’t just one way of being profitable. There are many strategies and approaches that can help traders accomplish their goals. But whatever is going to work for that person is often going to be a defined and systematic approach; rather than one based on ‘hunches.’
Here are five ways to feel more in control of your emotions while trading.
1. Create Personal Rules
Setting your own rules to follow when you trade can help you control your emotions. Your rules might include setting risk/reward tolerance levels for entering and exiting trades, through profit targets and/or stop losses.
2. Trade the Right Market Conditions
Staying away from market conditions which aren’t ideal is also prudent. Not trading when you aren’t ‘feeling it’ is a good idea. Don’t look to the market to make you feel better; if you aren’t up to trading the simple solution may just be to step away.
3. Lower Your Trade Size
One of the easiest ways to decrease the emotional effect of your trades is to lower your trade size.
Here’s an example. Imagine a trader opens an account with $10,000. Our trader first places a trade for a $10,000 lot on EUR/USD.
As the trade moves at $1 a pip, the trader sees moderate fluctuations in the account. An amount of $320 was put up for margin, and our trader watches their usable margin of $9,680 fluctuate by $1 per pip.
Now imagine that same trader places a trade for $300,000 in the same currency pair.
Now our trader has to put up $9,600 for margin – leaving them with only $400 in usable margin – and now the trade is moving at $30 per pip.
After the trade moves against our trader only 14 pips, the usable margin is exhausted, and the trade is closed automatically as a margin call.
The trader is forced to take a loss; they don’t even have the chance of seeing price come back and pull the trade into profitable territory.
In this case, the new trader has simply put themselves in a position in which the odds of success were simply not in their favor. Lowering the leverage can greatly help diminish the risk of such events happening in the future.
4. Establish a Trading Plan and Trading Journal
In terms of fundamental factors, planning for various outcomes in the runup to key news events may also be a strategy to bear in mind.
The results between new traders using a trading plan, and those who don’t can be substantial. Compiling a trading plan is the first step to attack the emotions of trading, but unfortunately the trading plan will not completely obviate the effects of these emotions. Keeping forex trading journals may also be helpful.
5. Relax!
If you're relaxed and enjoy your trading, you will be better equipped to respond rationally in all market conditions.
FURTHER RESOURCES TO MANAGE EMOTIONS AND SUPPORT YOUR TRADING
For more information on managing your emotions when trading, check out our free trading guide Traits of Successful Traders, with exclusive insights from DailyFX analysts. Also on the subject, the following articles may be helpful
As traders, there isn’t just one way of being profitable. There are many strategies and approaches that can help traders accomplish their goals. But whatever is going to work for that person is often going to be a defined and systematic approach; rather than one based on ‘hunches.’
Here are five ways to feel more in control of your emotions while trading.
1. Create Personal Rules
Setting your own rules to follow when you trade can help you control your emotions. Your rules might include setting risk/reward tolerance levels for entering and exiting trades, through profit targets and/or stop losses.
2. Trade the Right Market Conditions
Staying away from market conditions which aren’t ideal is also prudent. Not trading when you aren’t ‘feeling it’ is a good idea. Don’t look to the market to make you feel better; if you aren’t up to trading the simple solution may just be to step away.
3. Lower Your Trade Size
One of the easiest ways to decrease the emotional effect of your trades is to lower your trade size.
Here’s an example. Imagine a trader opens an account with $10,000. Our trader first places a trade for a $10,000 lot on EUR/USD.
As the trade moves at $1 a pip, the trader sees moderate fluctuations in the account. An amount of $320 was put up for margin, and our trader watches their usable margin of $9,680 fluctuate by $1 per pip.
Now imagine that same trader places a trade for $300,000 in the same currency pair.
Now our trader has to put up $9,600 for margin – leaving them with only $400 in usable margin – and now the trade is moving at $30 per pip.
After the trade moves against our trader only 14 pips, the usable margin is exhausted, and the trade is closed automatically as a margin call.
The trader is forced to take a loss; they don’t even have the chance of seeing price come back and pull the trade into profitable territory.
In this case, the new trader has simply put themselves in a position in which the odds of success were simply not in their favor. Lowering the leverage can greatly help diminish the risk of such events happening in the future.
4. Establish a Trading Plan and Trading Journal
In terms of fundamental factors, planning for various outcomes in the runup to key news events may also be a strategy to bear in mind.
The results between new traders using a trading plan, and those who don’t can be substantial. Compiling a trading plan is the first step to attack the emotions of trading, but unfortunately the trading plan will not completely obviate the effects of these emotions. Keeping forex trading journals may also be helpful.
5. Relax!
If you're relaxed and enjoy your trading, you will be better equipped to respond rationally in all market conditions.
FURTHER RESOURCES TO MANAGE EMOTIONS AND SUPPORT YOUR TRADING
For more information on managing your emotions when trading, check out our free trading guide Traits of Successful Traders, with exclusive insights from DailyFX analysts. Also on the subject, the following articles may be helpful
