How to Manage the Emotions of Trading

How to Manage the Emotions of Trading explained by professional Forex trading experts the “How to Manage the Emotions of Trading” FX trading team.

How to Manage the Emotions of Trading?

Trading is difficult. The goal of this article is not to make trading seem less difficult; but rather to highlight the fact that many new traders can often-times become their own worst enemies, making trading even more difficult than it already is.

To illustrate how this can happen, try to think back to the last time that you were very angry; the last time that you were really mad about something.

Then think about what caused you to be mad.

Then think about what you did, and how you felt after you first became mad.

For many, when they became mad they lost control to some degree; as in – they weren’t able to draw upon their highest of mental faculties to ‘fix’ what was making them upset. This is a trait that can often hinder us from accomplishing our goals.

For traders, this issue can be very problematic.

Imagine you’ve just taken a trade ahead of Non-Farm Payrolls, with the expectation that if the reported number is higher than forecasts, you will see the price of the EURUSD increase very quickly; enabling you to make a hearty short-term profit.

NFP comes, and just as you had hoped – the number beats forecasts. But for some reason, price goes down!

You think back to all of the analysis you had performed, all the reasons that EURUSD should be going up – and the more you think, the further price falls.

As you see the red stacking up on your losing position; emotions begin to take over. These are often the same emotions we feel if we had just been in a shocking accident, or a fight with another person.

This is the Fight-or-flight instinct, and we have it for a reason.

In psychology circles, the fight-or-flight instinct is often regarded as being a key part of the human psyche; built to protect us in times of stress.

The theory states that when a person encounters stress, their brain quickly makes calculations (so quick that the person doesn’t even notice) to make a determination as to how that stress should be handle.

In some situations, when the mind deems the situation as too stressful to attempt to manage – we run.

In other situations, in which the mind feels as though we can make an impact with our actions – we fight.

This is often why we do or say things we regret when we fight with each other; in some cases, it really is out of our control.

This is the fight-or-flight instinct; always part of every one of us constantly seeking to protect us in times of stress.

In trading, we can get quite a bit of stress. When a position begins to turn against us, that’s when we begin to feel it. The red arrows on the chart accompany all the fears of failure that rush through our brains in nanoseconds.

As the loss continues to stack against us, that stress becomes more and more profound; making the concept of taking action even more intimidating.

And this is precisely how our fight-or-flight instinct can negatively affect us in trades, as we allow ourselves to make decisions in extremely stressful states that, often-times, don’t do us any favors.

The decisions we make in these situations are often called ‘knee-jerk reactions,’ or ‘on-the-fly decisions,’ depending on how they turn out. Bad trades are often reactions, while good trades are often decisions.

Professional traders usually don’t want to take the chance that a rash decision will damage their account; or said another way – they want to make sure one knee-jerk reaction doesn’t ruin their entire career. They often go through much practice, and many trades in an attempt to soften this emotional reaction to the stress of an open trade. Below are some of the ways that can help traders do this.

How to Manage the Emotions of Trading Conclusion

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