5 Tricks To Control Emotional Trading
Here’s the deal – we’re biologically programmed to hate losing. Even if it’s just at a silly game of Pictionary on a Friday night. But, losing at Pictionary doesn’t even come close to losing when trading.
As a trader, you must always keep your feelings in check. Think of your feelings as an untrained puppy who, as soon as let loose in the house, will chew on your socks and jump on the furniture. Your emotions are better tucked-in to sleep at trading hours. Lock the bedroom doors, if you must!
So, if you’re a novice or shrewd trader, here are 5 ways to avoid emotional trading and keep a healthy mindset, even when the market’s giving you pain.
Whatever You Do, Stick to the Plan
If you haven’t worked up a trading plan, get yourself into it right now. Your plan is like the safe-word you use whenever you feel at danger. You were probably in the right mindset when you were writing your trading plan; you considered your risk-tolerance and trading capital, before choosing the strategy you’d like to adopt. Also, if you want to reflect on your plan, don’t do it on trading hours; that’s when the adrenaline kicks-in and mess with your judgement.
Take A Breather After Each Trade
Placed a position in the market? Good on you! Now, get up and leave. Greet a neighbor, walk your dog, peel some potatoes, or make some origami. Whatever you choose to do, just make sure you step out of your trading arena. By doing any other physical action, you’ll calm yourself and come back to the game with a clearer mind.
Remember to Look Risk In The Eye
All life is a precious risk, so don’t go running from it! You’re in a business where the risks of loss are high – especially when leverage is involved. It’s good to be bold and courageous; but, don’t be impetuous. Never go all in, thinking you’ll be bringing home some big greens. Your greens might turn red at the glimpse of an eye! Consider all probabilities, think of your risk-exposure tolerance, and your capital when you’re looking at a trade. Don’t be too scared, but don’t be juvenile as well.
Cut Your Wins And Your Losses Too
Whether you won three trades in a row, or you lost three, the best thing to do after that is doing nothing at all. Assuming you won, you’ll feel unstoppable and there’s a strong possibility that you’d over-trade. If you lost, you’ll feel angry and bitter and would start your revenge trading. So, keep your distance and get back to your trading the next day.
Keep Some White Dough On the Side
Never, let me say this again, never use all your capital when trading. Keeping money on the side will force you to admit that loss is a possibility, thus rationalize your thinking. So, don’t allow risk to startle you; on the contrary, have the power to handle loss like you do it everyday, without panicking or dwelling on what’s gone with the wind.