Today, we’re discussing How to avoid emotional trading? Because even expert traders also fell in emotions and ended up facing losses. so any trader must keep his emotions aside while trading because He/She is also a human in the end & as a human, it is difficult for humans to control emotions.
So, first of all, what is emotional trading?
Emotional trading is when a trader or investor allows personal feelings and emotions to affect their decision-making. Sometimes it can be helpful, but generally, it’s a bad idea to bring emotion into trading.
Now, How to avoid emotional trading?
It is not about getting rid of your emotions, but about understanding and controlling them. To achieve this, the trader must:
- Understand their risk appetite: Some traders may be comfortable taking big risks and manage to stay calm even if they are facing small drawdowns. However, if you’re just starting or have a generally low-risk appetite, this is unlikely to end well. You first need to identify your risk appetite and plan accordingly.
- Have a solid trading plan: You need to have a clearly defined plan – what system you will use (be it fundamental analysis or technical analysis or a combination of both), its advantages and disadvantages, how you will identify trades, and how you will manage them.
Along with this, having a trading journal is essential, where you can write down your observations, identify your weaknesses and build on your strengths which can help you avoid common trading mistakes and become a profitable trader. Jumping from strategy to strategy will do no good and will lead to emotional trading.
3. Know when to take a break: If you feel stressed and tired, you may make mistakes or engage in revenge trading. It might be a good idea for you to set a rule that will define how many consecutive losing trades you will take a break and stop trading until you review what happened.
After all, it’s not just trading that can cause stress and lead to losing streaks. There may be external factors that are negatively impacting your mental state, and if you are facing such a situation it is probably better to take a break from trading.
