Seven tips to help manage your emotions while trading

Patience, perseverance and continuous learning can help investors develop the emotional intelligence necessary for success

Take the time to reflect on what situations or events cause you to make irrational decisions while trading. Reuters

Trading is not just about numbers and charts. It’s also about managing the emotional roller coaster that comes along with it.

As someone who has experienced the highs and lows of trading first-hand, I understand the importance of emotional resilience.

In this article, I will share seven tips to help you effectively manage your emotions while trading.

Whether you’re a seasoned trader or just getting started, these strategies can help you navigate the emotional challenges that can arise on your trading journey.

1. Plan ahead and strategise

Trading requires careful planning and preparation. Rather than making spontaneous decisions driven by panic, fear or the common fear of missing out, create a clear plan of action before entering into any trade.

You need to understand the thesis behind your trade; the “why” behind a decision. You also need to understand that it’s OK to be wrong.

Accepting that you are wrong (in either direction or timing) and moving on from that is a massive step forward in successful trading that most people simply will not adjust to.

You need to have a well-defined thesis of the reasons why you are entering into a trade (technical knowledge, fundamental understanding, your friend or someone you like on social media said so). And you need to know ahead of time how you’ll know if you are right or wrong.

A basic trading plan should include entry and exit points and risk management strategies.

2. Keep a trading journal

Maintaining a trading journal is an invaluable tool for self-awareness and improvement. Document your trades, strategies, successes and failures.

By reviewing past entries and getting into “why” you entered a trade, you can identify patterns, assess your emotional state in different market conditions and learn from your experiences.

This analysis will enhance your self-awareness and help you make more informed decisions based on lessons you have learnt.

Additionally, keeping a journal can serve as a source of motivation during challenging times, reminding you of your growth and resilience.

3. Identify your triggers

Understanding your personal triggers is key to managing emotions effectively.

For me, one of the biggest triggers is Fomo – fear of missing out. I love looking into the future, so any new shiny object or idea excites me. This has been both a blessing and a curse.

Take the time to reflect on what situations or events cause you to make irrational decisions while trading or investing. Is it market volatility, unexpected news, a potential breakout or something else?

Once you identify your triggers, you can develop strategies to mitigate their impact. This could involve implementing additional risk management measures or adjusting your trading strategy.

4. Assess your risk tolerance

Knowing your risk tolerance is crucial to maintain emotional balance while trading.

If your trades consistently push you beyond your comfort zone, this is likely to generate heightened emotional reactions.

Evaluate your risk tolerance and align your trading activities accordingly. Awareness of your limits will enable you to make more informed decisions and prevent emotional impulses from dictating your actions.

5. Embrace emotional resilience

In trading, losses are inevitable. What sets successful traders apart is their ability to bounce back from setbacks and persevere.

Cultivate emotional resilience by acknowledging that losses are part of the game. Embrace a growth mindset and learn from your mistakes.

Developing emotional resilience will help you navigate the ups and downs of trading with confidence.

6. Use technology

In today’s digital age, trading platforms offer a range of tools and insights to aid your decision making.

Take advantage of these resources to enhance your trading experience.

7. Embrace continuous learning

The market is constantly evolving and traders must adapt to stay ahead.

Embrace a mindset of continuous learning and growth by analysing the notes you have made in your trading journal and make adjustments.

Ask yourself and industry experts questions, connect with fellow traders and expand your understanding.

Continuous learning not only enhances your trading skills but also builds confidence and reduces anxiety and fear.

Stay updated on market trends, explore new strategies and be open to evolving your approach based on new insights.

Remember: Knowledge is power. Staying informed will help you to manage emotions more effectively.

Managing emotions in trading is a continuing journey. Embrace the process of self-reflection, plan and use technological advancements to support your trading decisions.

Remember, emotional mastery takes time and practice. With patience, perseverance and commitment to continuous learning, you can develop the emotional intelligence necessary to be successful in the dynamic world of trading.

Matthew Carstens is director of product experience at neo-broker amana