On the heels of the Trading Psychology blog, we decided to create a separate blog on emotional systems, which can be troublesome to a trader. Many emotional systems are not covered because they’re not the simple emotions such as greed, fear, etc. that most others address. As a trader, having the awareness of what your non-analytical brain is doing will ultimately help you understand why you react, so you are able to address it intelligently, making better trading decisions.
Can You Hear Me Now?
Following this blog, we will dig deeper into the main emotions with examples and how to combat them. Controlling your emotional state is not like a light switch, simply turned on and off. It takes conscious and repeated effort to gradually become “immune” to emotional reactions to trading. Coincidently, some of the most successful traders we know equate trading to “making the donuts”, or engaging in a mundane chore which does not elicit an emotional response.
Other Psychological Concepts
There are a few emotional and psychological “conditions” that traders may experience. Not necessarily a single emotion, but rather an emotional system, of sorts.
DISCIPLINE
Discipline mindset creates the direction and force where you face to find success. We here at Stonehill Forex can show you the path, but you must make the effort to walk it. It also means that you must adhere to the system you have developed, even if you book losses. Will you close out a trade before your system signals to preserve profits, and miss potential profit? A trade starts to go against you and strikes fear into your heart. Do you abandon your discipline and move your stop in the hopes that price turns around? Anything can happen, and disciplined traders do not deviate from their system. Period.
INITIATIVE
Initiative, while not a specific emotion, is an intellectual construct which needs to be mentioned. You got off the couch and did something about your FOREX trading. Good on you! Many people talk the talk, but few walk the walk. Making the commitment to actually doing something about your trading education, puts you leaps and bounds ahead of the pack. Learning anything new which is worth doing is a labor-intensive process, and with that process comes effort. So find your initiative to press on, and demonstrate resilience in the face of adversity.
INSTANT GRATIFICATION MONKEY
A sure way to prevent the degree of success you may reach. By expecting, and demanding, “instant gratification” is a sure way to blow up your account. Not waiting for your system to do its thing is just sabotaging your potential for profits. Many studies have been conducted on this topic and the universal understanding indicates that those who do not succumb to this trait, generally do better at the task. Trading Forex is a long game endeavor.
LUCK AND THE FORTUNATE
As much as we’d all like to believe in luck, it just doesn’t exist. In fact (as mentioned in the Repainting Indicator blog), luck serves as a coping mechanism when things don’t go as planned. A winning trade that becomes a loss cannot be consigned to “bad luck”. A losing trade can be directly traced to bad habits, an inefficient system, or what the market returned. Nothing more, nothing less. Now, a trader can be fortunate or unfortunate as a condition of describing the outcome of a trade. We cannot control what the market does, so wishing for good luck is better left to others without a plan. You’re a technical trader…what happens will happen, emotions aside.
CYCLE OF DOOM
A fascinating concept, albeit one which happens with incredible frequency. Most new traders (present company included) have been a victim of this at one time or another. The sequence usually presents as follows:
1. A Forex trader begins to profit using a strategy or a system.
2. Subsequent losses lead them to making changes to their system.
3. After repeated changes, they ultimately abandon their strategies and consequently searching for a better trading system.
4. A new system is found, and the cycle continues.
HELD HOSTAGE
I’ve often heard seasoned traders, various experts, and even brokers, claim that it doesn’t feel the same. “You don’t need to demo trade…just open a live account, so you trade authentically.” Nonsense. You must become familiar with the mechanics of trading on your broker’s platform, create a system which will actually work, and develop the psychological headspace necessary to become a proficient trader. Besides, brokers make no money if you trade a demo account, which is the reason why they push you to trade. Ignore them. You’ll trade when you’re ready.
MARRYING A TRADE
When traders insist on trading a particular currency pair when the market just isn’t trending well, or holding onto a bad trade because they “believe” it will act a certain way, it is a recipe for disaster. Or, a particular pair holds some emotional attachment for one reason or another. Each trade should be a series of emotionless decisions. Think of a flow chart. If this, then that. Nothing more, nothing less. Never marry a trade…they don’t love you.
MENTAL/PHYSICAL STATE of BEING
Trading while unwell is never a good idea. If you are sick; physically or under strain and stress mentally, it’s best to walk away from trading until you are well. Trading decisions while ill are generally not going to be your best, and you need to approach trading rested, relaxed and ready to do business. Give yourself a break. The market will be there. With so many currency pairs we suggest, trades will always find their way to you.
Parting Words
Now that we’ve covered the emotional spectrum, we’ll begin to identify more specific characteristics of those which are the real villains. In subsequent trading psychology blogs, we’re going to discuss strategies which you can implement immediately to help mitigate emotional baggage that holds you back, and weighs you down.
More to Come
There’s a lot more to come. If you haven’t signed up on our contacts page or subscribed to the YouTube channel, please consider doing so to receive notifications as we continue to publish helpful, relevant, and informative Forex related material to support your quest to becoming a better trader.
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BTW – Any information communicated by Stonehill Forex Limited is solely for educational purposes. The information contained within the courses and on the website neither constitutes investment advice nor a general recommendation on investments. It is not intended to be and should not be interpreted as investment advice or a general recommendation on investment. Any person who places trades, orders or makes other types of trades and investments etc. is responsible for their own investment decisions and does so at their own risk. It is recommended that any person taking investment decisions consults with an independent financial advisor. Stonehill Forex Limited training courses and blogs are for educational purposes only, not a financial advisory service, and does not give financial advice or make general recommendations on investment.