How to Stop Emotional Trading

Whether Forex, stocks, or otherwise, if you trade emotionally, you won’t be successful. Emotional trading is a great way to lose money and to psyche yourself out. Therefore, today we want to discuss how to take emotion out of trading. Once you can take emotion out of trading, you will be a far more comfortable, confident, and profitable trader.

Making Quality Trades

One of the things the most important things that you need to do in order to take emotion out of trading is to place quality trades. The point here is that if you follow a good strategy, you pay attention to your indicators, and all of that other fun stuff, your trades should be high quality.

In other words, the point here is that you should only execute trades when you are fairly certain that they will produce good results.

Trading stocks, Forex, and more, is not about quantity, but about quality. If you trade based on quantity, you will constantly be nervous and in fear that any one of those trades are going to go south. The higher quality your trades are, the less you have to worry about them. Ensuring that each and every trade is high quality is a great way to take emotion out of trading.

Don’t Pay Attention to Your Score

When you are in the middle of a trading session, whether Forex, stocks, or otherwise, one of the worst things that you could do is to constantly look at your profit and loss figures. This is not unlike an athlete. For instance, a basketball player rarely, if ever, looks at the scoreboard.

The player is focusing on the game, on every single play, on everything happening. However, paying attention to the scoreboard will do you no good, particularly if you are on the losing end.

If you want to take the emotion out of trading, pay attention, stop looking at your profit and loss figures in the middle of a session. If you constantly check your score, so to speak, you will end up losing sight of the big picture. This leads to emotional trading, and likely to even more losses.

Only Risk What You Can Afford

If you want to take the emotion out of trading, one of the most crucial things for you to do is to only risk the money that you can afford to lose. If you are gambling with your mortgage money, your rent money, your school tuition, or with your food money, of course every little thing is going to be emotionally charged.

Emotional trading often stems from the fact that people trade with money that they simply cannot afford to lose. If you start losing a bunch of money that you really cannot afford to lose, it is going to lead to even more emotional trading and bad decisions, and likely even more losses as you try to recoup what you already lost. Only trade with money that won’t put you in dire straights in the event that you lose it.

Trade with a Plan

When it comes down to it, there are two types of traders, strategic traders and emotional traders. Of course, emotional trading is not the way to go, but this also means that you need to have a good strategy in your arsenal.

The point here is that if you want to take emotion out of trading, you need to have a solid plan, a good strategy, and rules that you follow without question. Start off by trading small amounts with this strategy. Keep using that strategy and keep improving it.

As you gain confidence in the fact that your strategy is reliable, emotional trading will take a backseat. If you are confident that your strategy leads to winning trades most of the time, then there is no reason to be emotional. To take emotion out of trading, you need to put strategy into trading.

Keep it Relatively Small

Yet another thing that you can do to take emotion out of trading is to keep your trades relatively small, especially if you don’t have much capital to spare. Simply put, the more money you invest into a single trade, the more emotionally charged you will be.

For example, you will end up caring far more about a $10,000 trade than a $100 trade. It’s simple math and logic really.

Remember, if you trade right, particularly in the Forex market, even small $100 trades can have huge profit potential, but because you only risked such a small amount, it should help to take the emotion out of trading. The bigger your trades are, the more likely you are to engage in emotional trading.

Forget Your Ego

Something that often leads to emotional trading is our own egos. Yeah, we think that we are the best in the world. If we win a few trades, our egos might tell us that we are invincible, and we then start taking huge risks.

On the other hand, if we lose some trades, our egos might take a huge hit, and then cause us to start being overly cautious. Either way, both are forms of emotional trading, and it needs to stop. Your ego and how good you feel about yourself has nothing to do with trading.

Whether stocks, Forex, or anything in between, trading is about strategies, plans, and cold hard data, not your emotions, and definitely not that fragile ego.

Become Comfortable with Risk & Loss

To take emotion out of trading, something you absolutely need to do is to become comfortable with risk. Risk and loss are inherent aspects of trading. Yes, sometimes you will lose trades and you will lose money.

This is just the way it is. If you aren’t comfortable with this fact, then all you will engage in is emotional trading. Of course, losing tons of trades is not good, but if you worry about each loss, you will get nowhere fast.