Although trading in the Forex market can be an incredibly exciting and rewarding experience, managing one’s emotions while trading is an essential skill that will help ensure success. In this article, we will explore how to apply emotional intelligence and how to navigate the stressors of the market in order to maintain a productive balance between emotions and trading.
Trading can be both mentally and emotionally demanding. While understanding market behaviour and spotting profitable trading opportunities is certainly important, the ability to remain emotionally in control is just as critical. Without proper control of your emotions, trading can quickly transition from a profitable endeavour into an emotional roller-coaster. To address this, traders should strive to balance important elements like market knowledge, risk management, strategies, and most importantly, managing emotions. Through understanding and controlling your emotions, traders can develop more profitable strategies and enjoy healthier trading results.
Fear, Greed and other Emotions
Surrounded by all kinds of emotions, traders need to remain vigilant of the ones that can affect their trading the most. When trading, the two biggest emotions traders should be aware of are fear and greed. Fear often causes traders to exit a position too early, or not enter one at all. Greed, on the other hand, might lead traders to keep a position open prematurely, searching for just a few more pips. As fear and greed lead to over trading or under trading, traders need to be careful not to get influenced by them and instead rely on good research and planning. Other emotions to watch for include elation, a feeling of success; and hope, the unrealistic expectance of magical market movements. By becoming aware of how their emotions affect their trading decisions, traders can become better prepared to conquer their fear or greed before they ever come into play.
Disciplined and Strategic Mindset
If traders identify prospective positions, their next step is to remain disciplined about them. This requires not only identifying sensible entry and exit points, but also deciding which strategies are best suited for the trading environment. To keep emotions under check, formulate your trading strategy based on your needs and market knowledge. Identify and set up your risk levels and stick to them when entering and exiting trades. You should also resist the urge to interfere with the open position until it has reached its predetermined target or stop-loss. Lastly, following through on your plan is just as important as forming it in the first place. This is especially true when it comes to tighter stop losses or exiting a position too early by fear.
Customize Your Rules
Regardless of markets or strategies, the key to successful trading lies in the ability to stay disciplined. This means developing a trading style that favors consistency over any individual trading decisions. To achieve this, some traders opt to create personal rules that fit their trading plans like a glove. This can be as simple as implementing protective stop-losses for all trading positions or not risking more than 3% of your capital and capitalizing on high probability trading setups. Whatever the case, traders should seek to follow their trading plan as closely as possible and incorporate nightly checklists for keeping their performance steady. While this might seem trivial, keeping your performance consistent can help cultivate the right mental habits for trading over the long term.
Taking control of your emotions is critically important when it comes to trading. Trading can be a difficult endeavor without the right emotional discipline. To help better control emotions when trading, traders should establish a clear trading strategy that they remain consistent with. Additionally, they should strive to remain aware of the emotions that can threaten to derail them-like fear and greed-and instead rely on their trading plan to make sound decisions. Finally, integrating nightly checklists to organize trading decisions and developing personal rules to fit your trading plan can help ensure growth and success. With the right approach, traders can become better prepared to take control of their emotions and ultimately their success.