Our lives are powered by our emotions. They motivate us to act and have an impact on how we think and feel.
In order to trade more effectively, we must learn to manage our emotions. Trading is based mostly on emotions, so in order to make good decisions, we must try to control our emotions.
As we know, our decision-making process is influenced by our emotions and when our emotions are high, we tend to act irrationally. So traders should try to remain calm, focused, and objective in order to manage emotions. That’s why trading psychology is important.
Traders experience a wide range of emotions throughout their trading journey. So they should understand and learn to manage emotions ! Let’s see what emotions are involved in trading and how to manage them…
Emotions involved in trading!
Fear
Fear is one of the most common emotions we experience while trading stocks.
We fear losing our hard earned money. We fear missing out on a good trade.
We fear being wrong. We fear the unknown. And we fear making mistakes.
However, fear is also an emotion which keeps us from taking risks.
Greed
Greed is the second emotion we feel while trading stocks.
We want to make money fast. We want to make big profits.
We want to beat the competition. We want to win. We want to be rich. We want to be successful.
Greed also makes us take risks.
Anxiety
Anxiety is the third emotion we feel while trading stock markets.
We worry about money. We worry about getting monthly targets. We worry about getting sick. We worry about everything.
So, anxious traders lose their focus and end up making bad decisions.
Anger or Frustration
Anger is the fourth emotion we feel while trading shares.
We get angry at ourselves. We get angry at the market. We get angry at our broker. We get angry at others.
We get angry when things don’t work out. We get angry when we miss opportunities. We get angry when our trades fail.
We get angry when the market goes down. We get angry when it goes up. Angry traders make poor trading decisions.
These are the most common emotions experienced by traders. When trading, there are many more emotions at work.
Practical tips to manage emotions
Self confidence
When it comes to trading, I believe that self-confidence is the most important factor.
This is because you will be unable to trade successfully if you lack self-confidence.
You should always remember that you are capable of making money in the stock market.
Never let anyone tell you how much money you should make. You must always have faith in yourself.
You must always believe that you will be successful.
When you begin to believe in yourself, you will begin to see results.
Meditation
Meditation is the first thing I would recommend before even considering trading in the stock market.
This is something that you should do on a daily basis. Try to keep your thoughts on the present moment when you meditate.
You should clear your mind of any negative thoughts or feelings that may have arisen from previous experiences. Observe your feelings, experience it and let them go.
This practice if done on a regular basis will help you focus and regain confidence for the next day trade.
Breathing exercises
When we trade stocks, we often feel anxious and nervous before making any trades. We should take some time to relax our mind and body before going into the markets.
The breathing exercise helps us to relax our mind and body. This will be the best time for trading.
When we breathe deeply, we feel relaxed and calm.
Take deep breaths slowly and deeply through your nose. This will help you relax your mind and body.
Count backward from 10 to 1. This will help you concentrate and relax your mind.
Focus on your breath and count back from ten to one. Repeat this several times until you are relaxed.
Trading Journal
Trading journal will help you track your trades. This is extremely helpful when you want to analyze your results and improve your trading strategies.
Keeping a journal is a great way to track your gains and losses. Even though you may think that you are doing well at times, you may actually be losing money.
By keeping a record of your trades, you can identify where you went wrong. You can then learn from your mistakes and adjust your strategy accordingly.
Trading can be a stressful activity. When things are going well, you may feel happy and excited.
However, when you lose money, you might feel frustrated and angry. Learning from your mistakes can help you prevent future losses.
5 whys
The Five Whys Technique involves asking questions until you reach the core problem or issue that needs addressing.
Once you’ve identified the problem, you then ask yourself what caused this problem and why it occurred.
By asking yourself these five questions, you’ll gain insight into the underlying cause of the problem, allowing you to address it effectively.
By using this technique, you’ll uncover the reason behind the behavior, which allows you to develop strategies to change it.
Eg. Why did I lose?
Over trading.
Why did you over trade?
I want to turn my losses to profits.
Why is that so?
Because I can’t handle losses.
Why can’t you?
I don’t have any other source of income. So I don’t want to blow up my capital.
Why didn’t you have another source of income?
Because I am afraid I might fail.
Here, fear of failure is the root cause of the problem which is over trading.
Once you find your root cause, you can solve the problem by changing your limiting beliefs or taking action to solve a realistic problem.
My experience
What worked for me?
For me, trading journal and 5 whys works the best. What works for me the most is this 1 question:
What mistakes did I do while being emotional?
I usually trade already extended trends which is about to reverse.
And also I ignore next support and resistance while placing my targets.
So, having these rules on my checklist helped me a lot while trading.
Where to learn Trading Psychology for free?
You can try sites like Udemy for free courses. And videos like this…
Takeaways
- Emotions plays the most important role in trading.
- To avoid making emotional decisions while trading, meditation and keeping a trading journal works wonders.
About Post Author
Resources & Links
Tradingview – Charting Platform
Zerodha – Trading brokerage platform (India)
Disclaimer
Trading involves substantial risk, and past performance is not indicative of future results. Always conduct your own research and consider seeking professional advice before making any investment decisions. The information provided on this platform about digital entrepreneurship is based on the author’s experiences and industry knowledge. It should not be considered as financial, legal, or business advice. Please consult with experts in these fields before making business decisions. This blog may contain affiliate links, and we may earn a commission if you make a purchase through these links. Your support is appreciated.
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