Managing Emotions in Trading

Managing Emotions in Trading

For almost everyone, being involved in the game or having a financial interest invested in something arouses emotion. If a trader or investor is not able to control your emotions, there is little chance that they will be successful in the long run.

Being able to avoid the pitfalls of emotional decision making is one of the most useful skills a trader/investor can learn to master.

Managing Emotions: Rules

 

 

Trade like a robot. Try to be as systematic and rule-based as possible. The benefit of trading algorithms and any systematic computer-executed strategy is that the human element is absent from the process.

When a big red candle occurs, if it does not fit the system rules for trading positions, nothing happens.

For many of us, when we see a big red candle, it triggers an emotional response. O red symbolizes warning, stop and danger. Although green can be said to have the opposite psychological effect., one that awakens feelings of greed, advancement and growth.

In trading, your goals mean nothing if your rules don't mean everything. Rule making goes back to a point we mentioned in a previous article about having an axiomatic structure on which your approach is built.

The most common rules for trading involve your settings, entries, exits and risk limits. This means having predefined ideas about the areas where we will exit a trade if it moves favorably, areas where we should forcibly exit if it moves unfavorably, and how much we are willing to risk in any given way. negociação under the given conditions.

Another tip that is less commonly practiced by retail traders but consistently applied on trading floors by risk managers is cut-offs.

If a trader is out of sync with the market or going through a sequence of low performance, it will scale back your trades or take a complete break until it starts performing well on the demo again.

That's why a demo account it's so powerful. Ultimately, a trader must have well-defined criteria that must be met to enter a trade. If all requirements are not fully met, there should be no negotiation.

Educate Yourself About You

It can be said that the fear and greed play a role in every decision we make in life. One of the best things a person can do is learn as much as possible about the kind of behavioral disabilities we are most likely to have when captivated by these emotions.

Specifically, the most common cognitive biases that many of us fall victim to when capital is at stake.

Certain rash judgments may have served as survival mechanisms in the past, but by trading and investing, they can lead to our demise.

There are three articles in the behavioral psychology literature that every trader should study. "Thinking Fast and Slow” by Daniel Kahneman, “The Psychology of Trading” by Brett N. Steenbarger and “Trading in the Zone” by Mark Douglas.

 

Managing Emotions: Live a Well-Balanced Life

Managing Emotions: Live a Well-Balanced Life

In life, how we do anything determines how we do everything. If you expect to perform well emotionally in the market, you need to make sure that the rest of your life is organized as well.

Living a well-balanced life off the market will have a net positive effect on your ability to trade. If you are failing to follow the advice presented above on creating and following rules, and as a result your bad trades are also negatively affecting your life outside the market, it's time to start over.

Balance implies living a healthy life outside of trading and investing. This means taking care of your physical and mental preparation.

These positive changes resonate in every other area of ​​your life, including back in your business performance. Eat well, exercise and, most importantly, sleep well; these things are extremely important.

When we loosen our grip on these areas of life, we lose our ability to maintain clear judgment, logic and reason.

Trading and investing are some of the most difficult activities to participate in and succeed. If you intend to become a successful trader, you must approach the task as the best and most disciplined version of yourself.

Supply your brain with the right nutrition, get adequate sleep, have other options outside of trading, and don't neglect your physical preparation.

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