Avoiding the Emotional Trap: 12 Useful Tips on Managing Emotions for Traders

It is no secret that a large number of traders get into trading to reap the profits and secure a silent income. However, the world of trading is not free of risks, especially that it is controlled by several variable factors that could drastically affect market performance over night, causing traders to lose money.

Although the highs and the wins can be quite rewarding, they can also result in an impulsive desire to trade more to gain more. Lows and losses can be equally impactful on a trader’s psyche, pushing them to make unreasonable trading decisions that could further widen their losses. Fear, anxiety, euphoria, thrill; you might have to deal with them all if you let your emotions take the wheel and dictate your trading steps.

In line with our efforts to promote responsible trading, FOREX.com experts have put together 12 useful tips on managing your emotions in the trading world to help you avoid emotional roller-coasters that often cause you to take regretful decisions.

1. Accept the risks. Before you even start trading, you need to be fully aware that trading entails potential losses that vary according to the market you’re trading on. Accepting the possibility of loss allows you to better manage your expectations as you move forward on the trading scene.
2. Enter the trading world gradually. Don’t rush your luck nor your trades. If you’ve set your mind on trading, start with a Demo Account that enables you to practice and build up your confidence, discipline, and patience without putting your capital at risk.
3. Educate yourself. Whether you’re a junior trader or a trading maverick, learning is key in the world of trading and it never stops, no matter how advanced your trading level is. There’s always new concepts to learn about, new skills to acquire, and new markets to tap into, responsibly.
4. Ask yourself the right questions that will guide you to the right trading behavior and
   performance. What is your purpose from trading? Are you aware of all the risks? How much money are you willing to lose? Are you fully dependent on trading as an income source? Do you know yourself enough to know what could affect your trading decisions and mindset? Such questions help you set rules for your trading. You might want to read our previous article “Trading psychology: the biases and emotions in trading” to know more about trading psychology and its determinants.
5. Know your trading style. Set a strategy. Devise a plan. Those three steps come together for your trading style determines your trading strategy which, in turn, steers your Trading Plan. Through the FOREX.com website, you will find plenty of educational resources on trading styles, strategies, and plans to assist you in building your trader’s profile.
6. Don’t quit your job… yet. If you’ve just started trading, don’t just quit your job and make trading your sole source of income. Trading requires a good amount of practice at first. So, deal with it as an on-the-side passion or hobby until you master its techniques and strategies well enough to move to the next level.
7. Don’t go “All In”. When you trade, avoid “All-In” moves. Putting all your eggs in one basket by investing the entirety of your money in one market or by emptying your wallet to back a position based on an impulse, could make you lose everything at once. Diversifying your trading portfolio could enable you to minimize potential losses.
8. Avoid markets you know nothing about, until you do. Not all markets have the same performance nor the same factors that affect this performance. For example, Forex markets are notoriously volatile, which means they move quickly and profits can turn to losses in the blink of an eye. That’s why this market tends to attract quick-thinking and disciplined participants. Stock markets, on the other hand, tend to attract more patient individuals who are willing to do their research and wait for the right opportunity, as they look at a company’s earnings and true value, before making a trade.
9. Don’t succumb to peer pressure. Herd behavior is the idea that individuals mimic the behaviors of the many. It can be dangerous if traders just jump into a trend without doing their due diligence and research. Although it’s useful to get ideas and inspiration from professionals and other traders, it’s important to keep your own strategy and plan in mind.
10. Choose a trusted trading platform. There are many trading companies but only a few, are reliable. FOREX.com is part of StoneX Group Inc. a Fortune 500, fully regulated and publicly listed (NASDAQ: SNEX) financial services company with over a century of serving clients, operations spanning more than 185 countries, and an annual trade volume of $4.4T.
11. Be your own critic. Assess your performance every few weeks. Take the time to look back at your trading outcomes, your positions and how you’re progressing to identify and change any bad habits that you’ve picked up. FOREX.com has even automated this process for you through its Performance Analytics tool, which acts as your trading coach. It allows you to gain a deeper understanding of your trading psychology and helps you set your trading plan, track your discipline, learn from your past behavior, analyze your trading patterns, and manage your emotions and biases.
12. Keep greed and fear under control. Successful traders act upon a well-tested trading strategy and constantly develop their understanding of both their mindset and financial markets, instead of being led by negative emotions like greed and fear. Greed kindles the desire to earn excessive profits which may impact a trader’s ability to make rational decisions, causing them to enter positions that have a high amount of risk or stay in a position for too long. Fear, on the other hand, is an irrational concern over the risk of a trade. It can cause traders to avoid taking a position or exit a position too fast out of fear of losing money.

Remember, whenever there’s risk, moderation is key. Emotions can be managed by building your trading course on three pillars: ongoing education, hands-on practice, and a rational mindset that plans before taking action.

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