Common Mistakes: Getting Emotional
Emotions and trading simply do not go together. If you ever wanted an article in a nutshell, that would be it. For the sake of the why and the how though let’s take a look at where it comes in to play. Confidence will be mentioned again along with several other ‘common mistake’ subjects I have already written about. That’s because they are all parts of the machine that won’t run properly if one is missing. The failure of one part triggers failures in other parts.
The main emotion you need to avoid with your trading is anger. Anger will have you behaving irrationally and this does not only apply to Forex. The main difference with Forex is that it will result in you losing money and no one likes losing money so that you will just anger you further. I sense a vicious circle here don’t you? Part of this anger cycle is also the blame game, blaming your broker, blaming your computer, blaming your pet, anything that is not you. This irrational train of thought can get out of hand and if you were an outsider looking in on someone behaving this way you would probably laugh your ass off.
Amusing as it may be for someone else it would not be for you. Once you enter the world of anger and blame you will also now be prone to lack of patience, over-trading and even ignoring risk/reward. That’s right; a whole collection of parts from your brain mounted trading machine failing from just the one trigger point… GETTING ANGRY. Logic goes out the window and all your hard work is overridden, you start acting like a child who didn’t get his/her own way and disaster is just around the corner. Don’t let this be you!
In my previous article I wrote about confidence and mentioned that no matter how much confidence you had demo trading, things will change when you go live. It’s your emotions interfering again, making you nervous, increasing your heart rate and inevitably introducing the ”˜second guessing yourself’ element. This is where it is very important that you had created a complete trading plan, essentially meaning that you have every part of every trade pre-planned and were just waiting for your setups. You will have then spent enough time testing this plan using back testing tools as well as forward testing on a demo account. You will be 100% certain that it works. That’s where the confidence piece of this puzzle comes in again. Even though your brain will start playing emotional games with you as you start your live trading experience, you will KNOW that your trading plan is solid and remember how confident you felt on demo. All you have to do now is be logical about it and learn to control your emotions because they are not a part of this trading machine you are creating. This part of the machine is actually called ‘NOT getting emotional’. Notice how I have always kept the word machine involved in these articles; machines don’t have emotions and although in real life I completely support emotional content in people, and not machine-like behavior, when it is time to trade you need to be able to let logic and correctly built confidence take the reins.
The last emotion worthy of noting is ‘fear of loss’. Like it or not, the World we live in revolves around money. I know you hear all the time things like ‘Money isn’t everything’ and ‘Money doesn’t buy happiness’ etc, but like it or not these are probably people who don’t have any money. Whatever the case may be, if you don’t have any money then you can’t pay your bills, you can’t buy food, you can’t go anywhere or do anything. So yes, money isn’t EVERYTHING but it is ALOT. Even if your parents left you a piece of land with a house on it and you produced your own electricity and grew your own food, you still couldn’t go anywhere or do much with your life. It probably seems like I am getting off topic a little but it is all relevant. To finish my banter; I do believe that some people can live a full and happy life with very little money but they still need some. It is this need for money to survive that makes it so important to everyone and it is that attachment to money that introduces fear of loss. What can you do to combat this emotion? Well, besides experience which comes later, you must always trade with money you can afford to lose. This does not mean that you couldn’t succeed whilst trading with money you can’t afford to lose, it just means that if you did you wold be making it much harder on yourself. Fear of loss would be at it’s all time high as an influence.
I can’t say that anyone will learn to master the emotional side of trading by reading an article but I can repeat that awareness is key. How many times you make any of the mistakes you read about is up to you. Probably no matter how much reading you do you will have to live through at least some of these mistakes. The trick is to not let it cost you your trading capitol.