Everybody tells you that controlling your emotions is the key to successful trading. Yet this is hard to do. Some people spend years on the psychologist’s couch.
So what can you do to manage this critical component of trading? Here are 4 practical tips that will help you separate emotions from actions:
- Keep a journal: Many traders acknowledge the importance of logging their trades, but they don’t really practice what they preach. The value isn’t only for offline analyzing of your actions, but for making the right decisions. So, update your journal in real time, and write what you intend to do before making the move. Having to express your intentions to the journal will help you digest your move and verify if you’re about to do the right thing or not. Here’s a good example of a journal you can use right away.
- Think again: Do you feel like you’ve reached the right decision about opening a trade, closing one, or any other action? Great. But don’t act just yet. Trying thinking about it once again to make sure you are not acting out of an impulse or a gut feeling that might be wrong. Gut feelings are not necessarily bad, but they need to be verified.
- Count to 10: Another way to separate an emotional impulse from action is to count from1 to 10. Slowly. This will enable you to calm down either from a euphoric feeling or rather a desperate action.
- Stick to your plan: I guess you’ve heard that before, but this cliché is certainly useful. It is too easy to make a real time decision to ditch your plan “just this time” because there is a “one-time extraordinary” opportunity that is beyond the scope of your plan. Bending and breaking your own rules is a slippery slope. So, check if your actions correspond to your plan before making the move, no matter how promising it looks.
How do you deal with emotional temptations during trading? Do you manage to separate your actual moves from your feelings?
Further reading: 5 Most Predictable Currency Pairs – Q2 2012Get the 5 most predictable currency pairs