Why Controlling Your Emotions and Mindset is Key to Successful Trading
For most newcomers to trading, and even experienced traders, emotions are often one of the most important factors in making a profit. Take a look at our 4 top tips to control your mindset and be a successful trader.
Act in haste, repent in leisure.
Newcomers to trading forex and other assets could do well getting that tattooed about their person, such is its importance to long-term profitability. Indeed, it’s a lesson that some experienced investors also need to remember from time to time.
Those six words highlight the importance of removing emotions from your trading, of how sometimes we can eat into our bottom line by opening and closing positions at the wrong times – maybe because we’ve suffered a succession of ‘losing’ trades or because we’ve closed a trade and then watched the asset increase in value thereafter.
Having the right mindset is arguably the most important weapon a trader owns, and if you find yourself acting in haste when trading, then this article is for you.
We want to explore techniques that will help you to eliminate ‘emotionality’ from your game, from taking a breath to using automated software and Tickmill trading accounts, which will help you to retain your discipline.
Get your head right and, hopefully, profit will follow.
There will be losing days, weeks and possibly even months.
This is one of the universal truths of trading, and yet so many still utterly fail to grasp the basic concept that not every trade you execute will be paved with gold.
The implication is that, as the hands of time tick away, there is so very often the temptation to chase losses and try to turn a losing spell into a profitable one.
And so we start opening positions that we normally wouldn’t, or closing trades to lock in a return, when, actually, the indicators might be suggesting that holding for longer is the smart play.
If we could somehow divorce ourselves from our minds, we wouldn’t fall into such traps, and it perhaps explains why the most successful traders often use software to automate their actions.
Why? Because the mechanical approach takes the human element out of your trading game, and automation also enables you to use tools – such as stop loss and take profit – that actually take the emotion out of the equation.
The mindful approach
If trading becomes the only thing that you are thinking about, it won’t be long before you start mentally chasing your own tail.
If you are seeking a secondary income stream from your investing, then it’s only human nature to become preoccupied with thoughts of, ‘can I make more money?’ Such a mindset will almost inevitably lead to increased activity in the market, and for reasons already explored, this usually leads to bad trades.
Try to take time away from trading. It can be exciting in the early going, but in the long term you will benefit from refreshing your mind and body by not chaining yourself to your laptop/tablet/phone.
Taking regular breaks will enable you to replenish your thinking, taking some time to consider the assets you want to trade, and whether now is the right time to enter the market. Walking is scientifically proven to improve your brainpower – so why wouldn’t you take a stroll?
Alternatives include other forms of exercise, listening to music, cooking a nice meal, spending time with friends and family, and so on. Anything that gets the endorphins rushing is a good idea.
Know your limits
Some people are target driven – it helps them to have a clear goal in mind to avoid uncluttered thinking. This can actually be really beneficial to traders, who can set a profit target and stick to it.
However, just as important is setting loss limits, which are a pre-defined amount in a trading session that makes you go ‘okay, enough is enough’ before walking away from the action.
Of course, the stop-loss tool available in many software packages is exactly as above, but there are many traders who prefer hands-on, manual activity – in which case, setting your own loss limit is sensible. You can even write it down on a Post-it note and stick it to your device so that there’s no way that you might ‘accidentally forget’ when things are going well/badly.
Trading has a wonderful community of newbies, amateurs and professional investors who all do their bit to cheer each other along and aid improvement.
However, that brings with it challenges – especially when your fellow investors speak of their trading wins and profits.
So, learn to switch off forums, messaging services and groups during your trading and immediately afterwards – there’s nothing like a bout of FOMO to lead you into bad moods and bad decisions.