Trading Psychology – How To Control Emotions?

Every day stock market unlocks value with billion transactions where you can find multiple counterparties act with the aim of maximizing profits and minimizing losses. The assumption says that if a skilled trader, with sufficient knowledge of market fundamentals, technical analysis, company’s financial health, etc. does steps towards trend direction the ultimate decision should be definitely found. Yes, it works perfectly in a robotized market environment where decisions are made on short notice. However, people tend to fail in keeping emotions in check and maintaining discipline while trading. Instead, we are too distracted by external things and can’t take proper steps.

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Trading psychology is a very important (and natural) part of the business. People are born with certain emotional backgrounds that can be distorted by many factors. Having said that, we should really focus on how our biases affect our efficiency and slows down decision-making capabilities. How will you act as an investor if a stock out of a sudden plunges down? Let me give you an example.

Cryptos are booming

News comes out and your screen started flashing red which definitely makes you panic. In 95% cases traders get scared and unconsciously exposed to reckless actions. I remember one emotional investor told me he was holding a plenty of ETH coins bought at $200. You may think what could happen in a perfectly upward trend market? Well he had bailed out right before the Dec 11th breakout. His concern was a slight rollback from the resistance. When things like this happen, traders feel a need to sell off to stay away from any risk zone. The fellow investor might have avoided a potential downward move (which indeed was not justified) but the price had gone up so he missed out on a huge gain (currently the price is hovering around $700).

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Vast majority of traders is very vulnerable to market shakeups. The fear of taking wrong steps persists but only a few out of the group understand how to tackle it to reveal the decision-making potential. It is a very natural thing to protect yourself especially when your strategy melts down much faster than the development time. In any case, you should better know what your fear looks like. Bear in mind that even though your strategy runs smoothly you can’t make enough money unless you realize that the market is random. We can’t be 100% sure the trend goes in our favour. Nobody is perfect at that even with 5, 10, 15 years of experience.

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Also, by breaking down your issue with the fear you may know what exactly affects your presence of mind during sessions and what you need to do to seal it the future. It’s not a straightforward task as trading behaviour is complex and takes months (or more) to practice. You may think I am writing obvious things to you but trust me this is exactly what traders are being suffered from. Working off your fear will help you build sound portfolio in the long run. Otherwise, you will be always cutting your gains short or making wrong analysis of the trend.

Very often traders focus solely on 1 or 2 winning trades. They think to get their insight into how a particular stock may fare in the upcoming days to make sure they can hit the bank. It might be a wise strategy if you act in a robotized market but you don’t! Spread your trading performance across the entire portfolio and look at the most painful places. Winning trades is a good base but it may turn into a nightmare during the market crush. Don’t go greedy and limit your risk/reward ratios. There’s no need to approach the highs just to prove you can do better and earn more. Set your own rules of conduct (aka trading plan) where decisions are made in a rational manner. As long you as you can pacify your emotional crush (and all rules are in place) your odds of profitable sessions increase significantly. Nobody is smarter than you are!

May the force be with you traders!