In an ideal world, a trader needs to have an almost robotic mindset and be detached, not tied to the markets, impartial and, most importantly, be able to make trading decisions without any emotion. However, there is one small catch – this is almost impossible in the real world! As people, we cannot help but feel emotions, because our emotions help define who we are, that is, self-identify us.
Let’s be honest right away: As a trader, whether you are a beginner or have years of experience under your belt, everyone has experienced the flip side of emotions. This can be excessive greed, excessive risk, panic and closing deals at the most inopportune moments. When your emotions completely overwhelm you, you end up missing out on great trading opportunities! We all went through this and naturally blamed our emotions for unsuccessful deals. However, if you allow emotions to brazenly get into your trading, you will face constant difficulties in your trading career in Forex, and if you want to become a successful trader, you will need to learn how to quickly overcome your emotional outbursts and stop the impulse actions caused by them in time.
You can see with your own eyes how traders are experiencing a “storm” of emotions. When they are involved in the market, their emotions can negatively affect their trades even if they have years of experience, excellent discipline and a solid trading plan. No matter how successful a trader is, everyone can tell you about the days when they let their emotions get the best of them, and 9 times out of 10 they lost money.
So yes, emotions can ruin your trading career to the core!
Can we get rid of emotions?
It is probably impossible to eliminate them completely, but to cope, of course, yes. While you cannot completely get rid of emotions when interacting with the markets, you can control them, and as a result they will not control you (to that extent).
Below we will discuss two very important ways in which traders can get rid of the excess influence of emotions when trading.
Just think, if you are going to take an exam and want to get good results, but did not prepare for it – you are likely to experience significant stress from not preparing. In addition, you may not know how to answer certain questions, and as a result, you may not achieve the best results.
Have you ever heard the saying “If you want peace, prepare for war”? To many, Forex trading may seem like sheer fun and games, one big adrenaline rush when they hear how profitable and simple trades can be. At the same time, truly successful traders can assure you that the simple craft of pressing a button requires a lot of preparation, since it needs to be done very timely.
It’s the same with traders, you need to prepare before you even start thinking about entering a trade. Unlike the exam, which can be retaken, there will be no return after entering the deal. You will either lose money or make money, and ultimately the goal is to make money. Without proper preparation, this transaction will not only be like a gamble, but it will also cause a lot of stress in the trader, which we must try to eliminate, as this can lead to poor decisions and loss of capital.
To relieve stress, traders tend to prepare various potential trading plans and mentally sketch out several different scenarios before entering a trade. This can take from 1 hour to 1 week, depending on what is being traded and for what period of time. However, once prepared, traders will be able to enter the market not only with confidence, but also emotionally calmly, allowing them to make rational, stress-free management decisions to maximize their trading results.
2. Drawing up a checklist (checklist)
This point fits very well with what was said above – prepare first.
You may ask the question, “I have a trading plan, why do I need a trading checklist?” Well, there is one huge difference between a trading plan and a trading checklist: a trading plan contains your entire approach to the markets and includes the entire process of analyzing your trade. While the checklist contains only part of your analytical process, it includes some key points on the basis of which you decide to enter a trade or not. It is advisable to always keep this list next to your monitors at the workplace.
You yourself have probably observed more than once that many unlucky Forex traders do not have any analytical cheat sheet at hand and trade solely on emotions and impulses, which is more than likely to lead to losses. However, with a checklist, you will plan your trade in the right order, you will remember to take important steps and checks, and the discipline of having a checklist will mentally free you (relieve stress). This will help you focus on the specifics of the trade you are about to enter. In tense, hectic markets and the trading floor, a checklist will force you to stop, reevaluate, act in a disciplined and methodical manner, and give you a solid plan that you can use under any circumstance.
Below is an example of what a Forex trader’s checklist might look like:
- Is this transaction in line with my risk management guidelines?
- Does this trade match my trading plan?
- Do I know where the entry trigger should be?
- Do I know where to exit the trade if I’m wrong?
- Is my trade in line with the fundamental principles of market trading?
- Do I have a trade management plan?
- Do I feel 100% confident in the deal I am about to make?
The key to trading success is emotional discipline. If intelligence were central to the trading process, there would be many more people making money in the Forex market.
It is important to understand that emotions usually play a negative role, however, it is important for us to filter out positive emotions from negative ones, as some emotions can be very beneficial for us traders.
For example, our drive to win can make us work harder and do the work necessary to prevent losses in the markets. Our competitiveness can give us very strong motivation to keep working even when we are having bad days, and the fear of losing can do the same. Overall, with the right emotion management skills, you can actually filter them out. Although it is impossible for us to turn into robots and completely disconnect from our emotional background, we can reduce their intensity and still experience our emotions, but at a level where our mind can make calm and rational decisions.