As we all know, emotion management and currency trading, like water and oil, never fit together.
The key to success in forex trading is emotional discipline, and you can’t succeed if your emotions affect you every time you sit down at your computer.
But that doesn’t mean all emotions have a negative effect.
For example, the overwhelming excitement when a deal goes through, or the elation when a monthly goal is reached.
These are positive emotions that need to be cultivated and put to good use.
The impact on longevity, however, is what any negative sentiment has on a forex trader.
If you don’t have a good handle on your emotions, don’t worry. By the time you finish reading this article, you will have a whole new understanding of how to manage emotions in forex trading.
01 “mood” is small scattered the biggest resistance?
There’s a lot of foreign research on emotional trading, and a lot of it says that emotional trading is “expensive.”
A study by Cass Business School estimated that emotional trading could incur losses of at least 1.2 per cent a year;
Another annual survey of investor behaviour in American stocks, by DALBAR, estimates losses of 3-4%.
On Diary Square, someone wrote that “emotion” is the biggest obstacle to a small dispersion — unlike institutions that use a lot of EA trading, emotion is a more prominent issue in retail trading than the trade itself, which can lead to failure.
It’s no exaggeration. I’m sure you’ve experienced it before: Sometimes you can place an impulse order and get the opposite of what you expected;
Sometimes, you may be afraid to move, and finally lost the opportunity to enter;
Sometimes, you know you’re wrong, but you stubbornly believe the market will turn around, and you end up being wiped out……
Losing money on your own account may be trivial. The problem is, emotions are contagious.
Investor irrationality can cause wild swings in asset prices: when bullish sentiment runs high, buying surges, creating market bubbles;
Once the panic spread, the selling intensified, leading to stampedes.
A UBS report in 2015 noted that retail investors often buy in the last stages of a stock market rally, so the emergence of a herd can almost act as an exit signal: Once the herd appears, there is a brief (3-4 day) upward momentum.
But over the longer term (a week or a month), stocks tend to reverse course.
With all that said, how do you manage your emotions in trading?
When people think of “emotions”, they think of “restraint”.
When we typed “emotional trading” into the Baidu search engine, the first entry that came up was “Emotional trading is the biggest enemy of profit”, followed by “How to avoid emotional trading”.
“Emotions are like a tiger. You have to lock it down when you’re trading.”
“Don’t act impulsively. Don’t get caught up in greed and fear.”
“You want to completely eliminate emotional trading.”
…
These exhortations are arguably useless.
It is unnatural to suppress your emotions deliberately.
That’s why we use the word “manage emotions” instead of “avoid and overcome” because I think what we need is to learn to use emotions.
In his book Reinventing the Psychology of Securities Trading, trading psychology guru Steenberg argues that the difference between “emotions” is the biggest difference between successful and unsuccessful traders: traders fail not because of their emotions, but because their emotions distract them from their goals.
In setting rules and systems, successful traders find ways to insulate themselves from the emotional swings caused by market fluctuations.
In many ways, successful traders are just as worried as unsuccessful ones.
It’s just that successful traders don’t worry about dips and missing out on market moves. They worry about straying from their plan.
Focus on the goal is the cornerstone of their success.
A clear trading plan reduces the chance of derailment, but to be truly in control, traders need to learn to control their emotions.
Steenberg proposes three training methods for controlling emotions — “systematic desensitization,” “inoculation with stress,” and “switching out of old patterns.”
¢Ù “Desensitization method” This method was originally a psychological treatment method of behavioral psychology school.
To put it simply, this means that when you feel yourself going into a mode of anxiety, frustration, etc., while making an order, you can try non-emotional practices like “constantly flicking your finger on your knee” to train yourself to be calm in the face of market fluctuations:
“The dullness of this conventional pattern matches well with emotional situations, such as stop-loss triggers, eliminating emotional reactions and allowing for a more neutral approach to market behaviour.”
There are two steps involved. One is “detecting the emotion” — finding the cause is half the battle.
The second is “control,” which can help build a sense of control and reinforce introspection by focusing on non-emotional processes such as meditation, self-hypnosis or repeated finger flicks.
¢Ú The principle of “inoculation strain” is similar to that of “inoculation” in medicine.
By rehearsing the trading scenario in your mind before you start trading (such as what level I should handle, etc.), you can take it easy before the market opens. This helps to prevent nervousness.
In the rehearsal, have the most likely scenarios in the market, your emotional reactions to those scenarios, and how you plan to handle those emotional reactions.
When you mentally accept a loss, rehearse it in advance, and become familiar with what it will look like, you won‘t be so scared and excited that you can’t ignore the stop-loss rule.
The last way to “get out of the old pattern” is to not limit your emotions at all, and allow yourself to experience those emotions completely, such as fear, frustration, greed, and overconfidence.
Psychologists like Alexander Lowen and Alvin Maher have found that once immersed in the experience, people quickly disengage from destructive emotions and switch to new states and patterns.
This works because many bad trading patterns actually follow a pattern.
When emotions come up, they tend to come up one after another if you keep avoiding them;
But as soon as you break a pattern, the cycle can be changed.
These three approaches are in stark contrast to the advice to “lock emotions in trading” and “block out all emotions” — Steenberg argues that traders can make friends with emotions.
Finally, I would like to send you a word: “Trading is the epitome of life. If you want to develop yourself, look for immortal great people everywhere.
Identify people who have lived and studied markets and enriched the whole world with their opinions, and then stand on their shoulders and you will be amazed at how high and how far you can see.
“Epilogue: Taking a big step forward in your trading life is knowing that even the most positive emotions can trigger an equal amount of the opposite reaction when something goes wrong.
Even when the trend is positive, don’t get too excited. This can reduce the emotional backbiting after the occurrence of negative events, so that you always maintain a neutral and peaceful state of mind.
Always remember that being a successful currency trader is not about containing negative thoughts and emotions, but about managing them flexibly and ultimately finding the emotional balance fulcrum that works best for you.
