A wide range of emotions can affect your trading, in both a positive and negative way. Emotional trading can take many forms, but is almost always a bad idea.
Fear – some people find it hard to make the transition from using a ‘demo’ account with ‘play money’ to a real live trading account. When their own money is on the table, they can suffer anxiety that cripples their trading. If you find yourself afflicted, remember the lessons you learned in the demo environment – they will stand you in good stead.
Greed – when your trades are going well, it’s only natural to be excited about the potential for even greater gains. At these moments, it’s vital to stick to the rules of your Trading Plan: if the signs indicate it’s time to close your trade and take your profit, don’t keep holding on in the hope of making even more money.
Stress – it makes sense for you to avoid trading at stressful times. Divorce or illness, or even moving house or changing job, can distract you and cloud your judgment.
Joy – particularly happy times, as well, can affect your trading (and rapidly ruin your mood if all doesn’t go well). You might feel overly optimistic and more inclined to take risks that would usually be outside your comfort zone. Be aware of how your feelings are affecting your decisions.
Anger – you should especially avoid knee-jerk reactions. So, for example, you should never try and ‘get back at the market’ after a losing trade. Sometimes you may feel angry with yourself for making a wrong decision – put it down to experience, as nobody can get it right all of the time and we all learn from our mistakes.
Fear – some people find it hard to make the transition from using a ‘demo’ account with ‘play money’ to a real live trading account. When their own money is on the table, they can suffer anxiety that cripples their trading. If you find yourself afflicted, remember the lessons you learned in the demo environment – they will stand you in good stead.
Greed – when your trades are going well, it’s only natural to be excited about the potential for even greater gains. At these moments, it’s vital to stick to the rules of your Trading Plan: if the signs indicate it’s time to close your trade and take your profit, don’t keep holding on in the hope of making even more money.
Stress – it makes sense for you to avoid trading at stressful times. Divorce or illness, or even moving house or changing job, can distract you and cloud your judgment.
Joy – particularly happy times, as well, can affect your trading (and rapidly ruin your mood if all doesn’t go well). You might feel overly optimistic and more inclined to take risks that would usually be outside your comfort zone. Be aware of how your feelings are affecting your decisions.
Anger – you should especially avoid knee-jerk reactions. So, for example, you should never try and ‘get back at the market’ after a losing trade. Sometimes you may feel angry with yourself for making a wrong decision – put it down to experience, as nobody can get it right all of the time and we all learn from our mistakes.
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