How to Handle Your Trading Emotions

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3. How to master trading psychology and conquer your emotions

We have all heard it: Psychology and emotions are the most important factor in trading and the biggest hurdle.

But why do so few people then actively work on it? It’s simple: most do not know how.

When it comes to psychology and trading emotions, there are three main pillars:

3. FOMO (a result of the first two often)

In this lesson you will learn how to work, and then hopefully overcome, those three challenges. But you will not get the usual tips – promise!

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1. Why traders fail and how to overcome it

2. 3 tips for creating bigger winners and reducing losses

3. How to master trading psychology and conquer your emotions

4. 5 minutes for the perfect trading day

5. Start trading like a professional

6. 3 tips that you can do right now

тест: The Edgewonk Quiz

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How to beat your emotions in Forex trading ?

How to beat your emotions (Fear, Greed, Happy, Sad, Tension) in Currency trading ?

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Greed and fear are two major deadly feeling which if not checked will lead to your ultimate failure in forex trading. Virtually 99% of traders find themselves battling with these two emotions. Well, guess we are naturally inclined to act in fear and greed.

Believe it or not, the difference between successful traders and the unsuccessful ones is that while the former has learnt effective techniques for controlling these emotions, the former is just clueless about it. I shall be sharing with you tips which when followed will help you put these emotions under check as you pursue success in forex trading.

1. Get over your losses as soon as they come:

Some traders make the classic mistake of waiting for long after incurring losses in the hope they would do well. In reality, the dynamics of the market move so fast that such traders find themselves losing several more points. Even when they eventually rise, they will still maintain an unprofitable position. Always bear in mind that not every trade will be profitable. Your goal should be to profit from at least half of your total trade. When you have eventually found your winning campaigns, focus more on them as doing so would lessen your losses.

2. Never allow your emotions interfere with your trading

Decisiveness is key to every business dealing, including forex trading. Successful forex trades are those who are decisive enough to respond quickly to trends that alter the dynamics of the market. Once your original analysis has changed, change with it.

The forex market is filled with uncertainty – the good and bad will always happen sometimes when you least expect it. It is beyond you power to accurately predict the market, and you have to accept that.

3. Work with a plan in mind and not with hindsight:

Most forex traders see forex as more like shopping rather than trading. By shopping, I mean spending your dollar without planning on stuffs when the sudden feeling to do so arises.

So, instead of trading based on your instinct or feeling, it is better you have a plan and stick with it. Your plan must take into account stop loss and profit target. A plan makes it easy for you to get out on time when the market moves against you, and to amass profit when it moves in your direction.

Having a plan that hints you when and when not to trade is the best way to deal with harmful emotions that plague forex traders. This technique works because you won’t to make personal judgment for your trade. Depending on your instinct and gut feeling may work but only in short term – you need a solid plan to succeed with forex trading in the long term.

4. Observe all forex trading rules:

Before placing a trade, check to see if you have met all listed condition, otherwise, you will have yourself to blame.

Truthfully, there is nothing difficult about following rules. As easy as this may sound, some traders often times fall for the trap of placing trade without first knowing all the required condition. As a rule, never get carried away with excitement, influence of others or fear as they are all deceptive.

5. Don’t place your trades all at the same time:

The forex market is very unstable in nature, and no one can exactly predict its direction. It is filled with series of uptrends and retracement, and so what successful traders do is to wait to see trading signals before placing a trade, and will never trade during times of retracements.

Excessive trading will be of no help. If you have been trading in multiple currency market and yet to record success, the best thing to do at this point is to focus on one or two markets and forget the rest. The fewer the trade you follow, the easier it will be to track your success and losses. Lessening your number of trades makes it easy for you to spot out unsuccessful trades.

However, it is important you pay close attention to the market you are trading in. What matters most in forex trading is keeping up with market trend and conditions. During unfavorable market condition, you are better off staying away from trading.

6. A good money management technique is way better that forex trading technique

Trying to make so much money within a short period of time puts you are grave risk, and you are very likely to wake up one day and discover that all you have is gone. There are no shortcuts in life, and forex trading is no exception. Never be carried away when someone comes telling you how much profit they have made consistently during the months because it is most likely a scam.

Your success in forex trading starts the day you learn to master your emotions. Simply put, never allow yourself get dragged down in the event of losses, neither should you get over the roof in times of profits. When profits or losses doesn’t move you, you will eventually get to overcome the emotion of fear. When you look closely, you will discover that most mistakes traders make are made out of fear.

Conclusion

To become a successful forex trader, you must first master your emotions and put them under check. Failure to do so will inevitably lead to your failure, making success elusive.

Credits : Franco

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The Trading Psychology of Your Emotions to Master Your Trades

Table of Contents

Why it’s necessary to accept and harness your emotions in order to be a successful trader

Trading Psychology – We can never be neutral in our emotions. No matter how hard we try, we will always feel something, in some mood, and in some direction. For traders who think this is a bad thing when it comes to the markets, think again. Emotions can (and to a certain degree have to) be an integral part of your trading routine.

Simply put, without emotions, you’ll end up making erratic decisions based on impulse. If and when you remove emotions from your trading, you’ll end up in a very dangerous position, left with impulsive decisions based on a whim.

The Somatic Marker Hypothesis

An important theory in regards to emotion and how we can understand it as it pertains to trading is the Somatic Marker Hypothesis. This is a theory proposed by Antonio Damasio in which he described emotions as experienced through bodily states.

Imagine the idea of following your gut. In this situation, the body is signaling an emotional reaction to a certain situation. The intuition provided by the emotional state gives us an idea of which path to follow and can help us make a sound decision. If we are empty of emotion, we lose this valuable guide. Emotions are proved to be crucial in our decision -making process.

Now apply this to trading. Imagine you have a perfectly good trading setup that has performed well in the past and shows no obvious signs of failure in the future. Your emotions towards this setup would obviously be positive and encourage you to continue operating with this fruitful setup. If there were no emotions involved in the decision to use this setup, you wouldn’t have such a positive gut feeling towards the setup. Emotions guide and encourage you to continue with this setup, rather than make a poor decision like abandoning it for something potentially perceived as more logical.

Emotional Functions When Making Trading Decisions

Doing away with the myth that emotions inherently lead to irrational decisions, researchers have shown that emotions are instead an integral part of the decision making process. Emotions are not all the same and therefore shouldn’t be treated as such. While there are certain emotions that will lead to irresponsible and ill-advised decisions, there are also plenty of emotional responses that can guide us towards the right decisions. This is not to say that emotions should be categorized as either good or bad. There is a grey area and there is room to work on both sides.

The researchers who discovered the multifaceted nature of emotions identified four primary functions of emotions. We can take these four functions and apply them to the mental aspect of our trading routine.

Provide information

The first function of emotions is to provide information. That is, they help us in our understanding of situations and the possible options or alternatives to said situations. For example, when a trader finds a good setup, emotions can guide in the pursuit and implementation of the strategy. A good setup brings feelings of excitement which in turn influences trading psychology decisions.

How emotions accelerate our decision-making process

The next function of emotions is how they might accelerate our decision-making process. In the context of trading Psychology, this means that emotions can enhance a trader’s ability to make quick, necessary decisions. For example, a trader might be in a short trade when they see their trade stall. Along with this action, the trader might experience apprehension that the market is no longer moving in the direction planned. This sudden rush of emotion will help the trader make a quick decision before price can rally against them.

Focus attention

The third function of emotions is as a tool to focus attention. Emotions help us evaluate a situation by zeroing our attention in on the information that is most relevant to the circumstances. An example here would be if an experienced trader sees what appears to be a can’t miss trade. However, something in the trader’s gut tells them to take a step back and look at the trade over a longer period of time just to make sure everything’s in order. Emotions directed the trader to focus their attention on the larger picture and to obtain all the relevant background information.

Stick with your trades decision

The last function of emotions is to help us choose and stick with a decision. Feelings of confidence can reinforce a made decision and allow us to stick with it without fear or doubt. A confident trader is better prepared to stick with trade rather than impulsively bailing because of a slight setback.

Knowing Your Emotions and Opening Up to Them

While we can write all day about the importance of emotions in trading, it’s irrelevant unless you’ve opened up to them and embraced them. Emotions can be a force for good but if you’re not using them or acknowledging them, it won’t make a difference.

In order to familiarize yourself with and to embrace your emotions, there is a fun little exercise you can do to visualize your emotions and potential response to them. In the chart below, we’ve identified a scenario, the information associated with it, the speed at which it’s occurring, the attention devoted to it, and the commitment that comes along with it.

Map out a table for yourself and go through various situations and the emotions associated with them at every stage. Contemplate how you would react, how they would make you feel, etc. This can be a very helpful emotional preparation before you’re thrust into a position with no previous preparation.

Concluding Thoughts on Trading Psychology

While moderate, controlled emotions can lead us to make sound and wise trading decisions, strong, uncontrolled emotions will not. The idea in embracing and controlling emotions is to harness these out of control feelings so they don’t lead us down a path of ill-informed, irrational decision making. We cannot let our decision making be hijacked by extreme emotional tugs. Rather, we need to be aided by composed, controlled, understood emotions.

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Understanding Trading Emotions – The Emotions Cheat Sheet

Understanding Trading Emotions – The Emotions Cheat Sheet

Understanding Trading Emotions – The Emotions Cheat Sheet

Every trader knows that emotions are critical. But only very few know how to deal with emotions. Our emotions cheat sheet helps you understand your trading emotions in a new way.

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