The difference between success and failure can prove to be knowing how to control emotions while trading. Your mental state has a significant impact on the decisions you make, especially if you are new to trading, and it is essential for consistent trading to maintain a calm demeanor. In this article, we explore the significance of day trading psychology for both beginners and more experienced traders, and provide some tips on how to trade without feelings.
1) They don’t allow greed to influence their trading
Once a certain amount of money is made during the day, week or month, an experienced trader will know when to walk away. It is better than placing a trade and losing those gains; they avoid placing trades.
2) They are aware of the uncertainty in Forex
Within the Forex market, experienced traders are aware of the uncertainties; nothing is guaranteed. On Forex, it’s just a fact. The market can unexpectedly go against your predictions at any time , no matter how good your trading decision is. If you understand this clearly while placing a trade, if the trade results in a loss, you won’t get a shock. All you need to do is be fully prepared to face the loss. A saying is there: hope for the best, but prepare for the worst. To accept the loss you face, you have to be mentally prepared. The impact of negative emotions will certainly be reduced by this.
3) They never expect fast profit This is also tied in with greed.
Typically, new traders get into Forex with the mindset of getting rich overnight. If they think how much they can earn if the trade goes well, they completely forget or ignore another possibility: if the trade does not go as expected, they will lose a huge amount of money. The novices will then probably start placing larger trade sizes, causing a lot of risk to their capital. They also end up losing their entire capital in a couple more trades. This is never done by experienced traders! They always follow good management of risks.
You could be greedy if you find yourself only wanting to take trades that you consider as possible big winners. Your greed may have been the result of doing well, but you may slip and end up with a draw down if you’re not careful.
Always check that proper trade mechanics are used (i.e. sticking to stops, goals, good risk / management , good set-ups for trade). Sloppy trading can end a strong run as a result of overconfidence.
Why should you control emotions while trading?
Trading on emotions opens the door to self-harm and wealth loss. It is prudent to take a logical approach and base your decision on facts and figures.
Markets are on an exhilarating tear, with the Sensex and Nifty both going to set new highs. The raging bull market has increased investors’ wealth, and while valuations appear inflated, the current period is proving to be one of the best for most market participants. Markets have rewarded those who have been patient and committed to their investments handsomely. Even traders who got their predictions wrong were able to make significant profits.
However, there is one important factor that you must keep under control while trading, which is a skill in and of itself. Controlling one’s emotions when trading can mean the difference between success and failure. So, why should you keep your emotions in check while trading? Let us investigate.
Non-Alignment With Goals
Irrespective of whether you are trading or investing, the goal is to reach the intended goals. When you trade based on emotions, you are acting out of fear or greed. In such a state of mind, there is a risk of imbalance with your goals, which can be detrimental to wealth creation.
You end up picking stocks without even doing your homework or understanding the risks they entail. In the long run, you will fall short of your goals, and there will be little time to take corrective action. As a result, it’s crucial to keep emotions in check.
Forces You To Take High Risks
Emotional trading regularly forces you to take high risks, lead to an increased risk of losing a large sum of money. The issue is exacerbated if you are a newcomer because you do not know how to handle the situation.
Besides this, a bad attitude may force you to exit the market totally, going to deprive you of the opportunity to leverage the potential of equities for long-term wealth creation and inflation-beating returns. If, on the other hand, you trade unemotionally, you are well aware of the risks involved and plan your strategy accordingly.