Trading Mindset: The Importance of Emotionally Controlled Trading

When it comes to trading, having a strategy is not enough and will probably not give you an edge. Learning to stay sane when your portfolio is sharply down can be the main difference between success and failure. But for some reason, this factor is always understated when one learns about trading.

Trading is different from investing because whereas the latter involves a long holding period, the former involves repeated buying and selling of stocks and thus requires a different trading mindset.

With this unforgiving nature, emotional trading can result in more pitfalls as well as a significant capital loss.

So today we are going to walk you through the importance of keeping your emotions checked when trading and how to control your emotions and patterns of thoughts during the trading process.

Importance of controlling emotions while trading

Preventing unnecessary risk

Security trading is a risky business in itself and presumably, you knew about this before going in. There are layers of both systematic and unsystematic risks associated with the stock market. And although you may devise some strategies to avert these risks, you are likely to adopt a myopic approach in case you let the emotions take over, thus elevating the major risks manifold.

When trading under emotions, you tend to ignore some of the fundamental aspects of trading, such as learning the organization’s corporate governance model.

Avoiding Misaligning Goals

Your trading should be aligned with your goals to ensure that you can access your money whenever you need it. But when you don’t control your emotions, you will be more likely to make calls that go against this trading mindset. Your emotions will direct you to take short-term views, which can substantially impact your wealth creation efforts.

But when you trade with controlled emotions and patterns of thought, your judgments will be based on facts, logic, and empirical evidence. This will enhance your wealth creation efforts as well as give you peace of mind.

Shunning Revenge Trading

If you lose some or all of your capital due to emotional trading, you are likely to embark on revenge trading with the hope of recouping your money back. Everyone has that intense desire to overcome the loss immediately, but unfortunately, this could cause more harm to you than good.

Moreover, revenge trading can also lead to overtrading, which can double your costs and spike your stress levels. This will only result in more bad calls.

Making your Trading Enjoyable

Controlling your emotions can result in a positive trading mindset that will make the whole experience pleasant. Ensuring there is no room for sentiments will give you a better shot at creating wealth in Trading.

The stock market is not a place for shortcuts. Cutting corners more often than not end in flawed decisions that may sour your entire trading experience, especially if you are a beginner.

How to control emotions and thought patterns during trading

Do your due Diligence

More often than not, frustrations in trading come when you don’t know what to expect or do next. But this can be avoided by performing in-depth market research, especially in the areas you are curious about.

If you dedicate yourself to learning something new and in detail, you can always get your confident trading mindset back and make a comeback in the game.

The markets are constantly evolving, and this means there will always be something you don’t know about, which could lead to emotional trading if you don’t make an effort to learn.

One way to enhance your market research is by subscribing to trading newsletters. In trading, you don’t have to always follow opinions that you strongly agree with.

The most important thing is to keep learning about the market to gain the aptitude to see things from different perspectives.

Write a plan

Everything becomes simpler with a plan. If your trading stratagems keep failing, now might be the right time to set up trading goals and write a plan of action.

Take your time to understand what you want to achieve with your trading. For instance, you can answer questions like – are you looking to capitalize on a huge market movement? Are you trying to hedge? Are you trying to scale a position to reduce your trading cost?

Answering questions like these will help you arrive at the ‘why’ or reason behind your trading.

Your plan should include a vision and or mission statement as well as achievable metrics that will help you understand whether your trading is going as planned or not.

Strengthen your Resolve

One thing that will help you stick to your trading objectives is strengthening your resolve. Being extremely confident in your trading plan can help you avoid short-term calls when you are anxious about closing your trades at a loss.

Emotions and fears are part and parcel of decision making and we can’t just avoid or remove them – instead control them.

This means that your goal is not to be an unemotional robot, but rather to adopt the right kinds of emotions to preferences that can lead to profitable trading decisions.

Turn off Market Noises

Most cases of overwhelming emotions result from market noises. It doesn’t really matter if you are in the bear or bull run phase, noises will always come your way. While not all noises are unimportant, allowing unfiltered noises to reach you can affect your trading mindset and decision-making.

With that in mind, you must block inconsequential noises if you want to keep your emotions and thought patterns under control.

In addition to blocking unnecessary noises, you should also refine your thinking. Logical thinking will help you keep a lid on your intense emotions. You will be able to make decisions backed by data, thus putting you in a strong position to reap profits. Also, thinking logically will ensure you always question whether a decision is driven by emotions or backed by evidence.

Conclusion

Trading is an up and down affair and once the tack up on our losing position, we tend to be overtaken by intense emotions. This is normal – it is the evolutionary Fight or Flight instinct. However, while you shouldn’t be an unemotional trader, learn to adopt the right kinds of emotions that will allow you to make informed trading decisions.