Emotions can be some of the most powerful things that you can experience in life, they are what some would describe as the things that make us who we are and what makes us human. As they are a large part of us, it is often strange when people say that you need to be able to remove your emotions when trading, but they are a part of us, so that can’t be an easy thing to do.
Let’s get one thing straight to begin with, when we are talking about taking your emotions out of trading, we are not meaning that you need to sit there like a roto and to have no emotions or feelings while you trade, that is not feasible and not possible, what we are talking about is all about your decision-making process and the trades that you make, keeping your emotions out of those decisions so no rash actions are made.
There are a number of different emotions that can be very dangerous to your trading, these are things that you should be avoiding at all costs as they could potentially destroy your strategy and any risk management that you have put in place. The first of those is greed and the second is overconfidence. Greed often comes from losses, make a loss or two in a row and you want to win it back, it can also come from wins, you have a win and then want more so you decide to increase your risks and trade larger sizes. Overconfidence has a very similar effect, you have made a few good trades and so you think that you have the secret key, anything you do will win and so you increase the risk, the trade sizes and then no longer pay attention to your strategy and just trade what you think, I am sure you can work out the end results of trading in this style.
So how do we get rid of those two very powerful yet devastating emotions, the fact is that you won’t be able to, you will always have some of those feelings and you may always want to earn more, but what is important is that you are able to get around them, having your trading plan there in front of you each time that you trade will allow you to remind yourself that you need to stick to it, you need to stick to the risk management plan that you have created in order to keep your accounts safe. If you have ever gone against it and made a loss, keep that in your mind and keep a reminder of it near your trading platform, this way you can remind yourself about what can go wrong should you go against your plan.
Creating a routine for yourself can help create the idea of a system for you to follow, having these rules and requirements for the things that you do when trading will help you to be more autonomous, doing what is required and not having to think about things too much. Removing this aspect of thinking out of your trading will give you less chance to develop ideas or to develop stronger emotions towards the trading that you are doing. It also helps you to stay focused and to avoid certain distractions that would otherwise take your attention away from your trading.
One of the things that emotions can cause is a bias towards certain conditions in the markets or ideas that the market will move a certain way. While getting to these conclusions through analysis is positive, emotions can often cause you to believe that they will happen regardless of what the analysis says, sometimes even when the analysis is saying the opposite. This is where you need to ensure that any decisions and trades that you make are based on the facts and the analysis that is available, not on what you think will happen, doing it this way and getting something right can lead to overconfidence and we have already discussed why that is a bad emotion to have.
Staying committed and dedicated to your trading plan is another way to avoid letting your emotions get the better of your trading. You need to stick with it, sometimes it can be hard, especially when things are not going the right way, but you created that plan for a reason and you created it because you know it can work. So you need to be able to stick with it through the good and bad times, only this way can you be sure that you will be able to keep it profitable.
Keeping your emotions out of trading is not easy, in fact, it is one of the hardest things to do when trading, you will want to jump with joy with a win and throw your computer out the window with a loss, but if you are able to control the emotions, stick to your plan, you will be able to be far more successful at trading than if you were to et those pesky emotions get the better of you.