A flexible and accessible source of supplementary income, trading in the financial markets requires high self-discipline and strong logical thinking. When it comes to trading, you’d better leave the emotions out of it and not let them become an obstacle on your way to success. In this article, the experts at Octa, a global financial broker operating in more than 180 countries, offer you some tips about which emotions are the worst when it comes to trading and how to manage them on your road to consistent financial gains.
In recent years, Forex trading has been steadily gaining popularity as a dynamic, fully legitimate, and high-potential source of additional income with comparatively low starting capital requirements. Having said that, there are some do’s and don’ts to follow and some traps to avoid if you want to reach stable gains with Forex. One of the mistakes you need to avoid at all costs is letting your emotions get the better of you during your trading sessions.
Nothing is more natural than losing your cool when your income is on the line. Most emerging investors are familiar with the thrill that goes hand in hand with closing your first winning trade. However, strong emotions may be a great source of motivation, but they are a weak foundation for consistent profits.
As a logical and comprehensible system of skills, Forex trading rewards those who approach it with cold reason and methodical thinking. To be consistently profitable with Forex, you need to leave the emotions behind. Here, Octa experts list five emotions that will impede your trading progress unless you keep them under lock and key.
1. Fear
An essential survival mechanism, fear is one of the most common emotions out there. However, when it comes to trading, fear is more of a limiting factor than a safety tool. It often makes traders panic and leads to irrational decisions such as closing a trade too early or not opening it at all.
Many traders experience the so-called FOMO, or ‘fear of missing out’: they feel they are failing to earn on a particular market movement while everybody else does. More often than not, the FOMO-inducing trends are brought about by financial influencers on social media. However appealing these tendencies may seem, it is better to avoid placing orders based on rumours and carry out a thorough analysis using your preferred tools and indicators.
To overcome fear, focus on your trading plan and stick to it throughout your sessions. Manage your fear by making the trading process more structured and controllable. For example, use risk management tools like Stop-Loss orders to limit potential losses.
2. Greed
Greed is another emotion that can be detrimental to your trading outcomes. It leads to excessive risk-taking, resulting in significant losses. Greed often makes you keep your orders open for far too long, ultimately causing you to lose the profits that otherwise would have been yours. This behaviour can backfire even more if you stay in the trade even after it has gone awry, expecting—or rather hoping for—a trend reversal.
To control your greed, focus on your long-term goals and move to it step by step. Do not let short-term gains get to your head and affect your decisions. You should also have a risk management strategy in place that includes taking profits at predetermined levels.
3. Frustration
Frustration is a natural reaction to not seeing the results you expected. It can lead to impulsive decision-making and cause you to deviate from your trading plan.
There are many reasons for this feeling in the trading arena. For instance, looking for promising entry points for orders based on past price movements can be frustrating since past performance does not guarantee future results. As a consequence, you can even get to the point when you start thinking there is no strategy out there that actually works.
To overcome frustration, you can focus on the process rather than intermediate results, ensuring your strategy works as intended and adjusting it in real time. Using a demo account is very helpful, too. With Octa, you can experience real-life trading without any financial risk by using a demo account: it is forever free and helps you fully replicate the actual Forex experience.
It is worth noting that you are much more likely to make mistakes if you are stressed or tired. You may need a break if you have several consecutive losing orders. Get some rest from the emotional pressure and carefully analyse what happened.
4. Overconfidence
Overconfidence is another emotion that can negatively impact your trading, especially if you pair it with excessive reliance on intuition. There are better ways to conduct trading activities. As lucky as you may feel, after a few winning trades, there will inevitably be a streak of losses, which can wipe away all profits and result in more significant losses.
Keep in mind that being overconfident about your trading strategy doesn’t mean it will produce better results. There is no such thing as a perfect strategy, so you should be ready to adjust yours as you go. Flexibility is one of the key qualities a trader needs in order to keep up with fast-paced financial markets.
Keeping a trading journal can help you see the whole picture more clearly since you will be able to analyse your trading performance and identify areas for improvement. Keep track of your trades, including entry and exit points, the reasons for the trade, and its outcome.
5. Anxiety
Anxiety can creep up on you if you keep brooding over intermediate results and do not keep your eyes on the goal. It can lead to indecision and even stupor, resulting in missed opportunities or an inability to exit a trade on time. Anxiously seeking proof that you are right and staying in a trade for too long could result in a costly mistake.
Let your strategy do all the work after you have entered the trade. Ideally, it should include entry and exit levels for your trade and risk management techniques that will help you protect your capital. Try to stay objective and abide by the already defined rules.
Conclusion
To sum up, emotion management should be a primary concern for both new and seasoned traders. As a trader, you should be aware of the emotions you are likely to experience and have dedicated strategies and tactics in place to overcome or mitigate them. By focusing on your trading plan, keeping a journal, having a risk management strategy up and running, and avoiding emotional decision-making, you will significantly increase your chances of success in the financial markets.
Source: PR Agency
