Trading Psychology: Controlling Your Emotions

Controlling your emotions is an essential part of becoming a successful binary options trader. Over reacting to the ups and downs of a market can cause huge losses or missed opportunities. It is very common for traders to get attached to both loosing and winning trades. For example, a trader who is on losing streak may feel the need to “make up” their losses and start to throw more money at the loosing trade. This often causes even greater losses to ensue because fear is taking over. On the other hand, a trader might get over confident because of a winning trade and start to make decisions that they normally would not. This too often causes traders to lose money because they are acting out of greed. These are the two most common scenarios when it comes to how emotions can effect a trader. This article will give you some suggestions on avoiding these mistakes and keeping your emotions balanced.

Create Trading Rules

One way that investors try to manage their emotions is by creating trading rules for themselves and sticking to them. Having a set plan ahead of time makes decision making much more effective. A plan needs to include limits on when to exit either a winning or losing trade. This means choosing specific amounts of how much to risk and how much profit is desired on each trade. This will help to lock in profits or minimize losses. Having exact risk/reward figures allows a trader to have a very systematic approach and is one of the most common ways that helps an investor take emotion out of the decision making process.

Take a Break After Each Trade

Day trading is a fast and relentless game. It is very easy to get caught up in the momentum of the markets and lose yourself in them. This is even more relevant after you have executed a trade. No matter if you won or lose it is beneficial to take a brief break after your position has settled. The physical action of getting up and walking away from your trading screen allows for you to clear your mind and balance your emotions again. It is a great way to regroup and collect yourself for the rest of the trading day. Doing this will help you keep perspective on your trading and will help to control your emotions.

Understand Your Greed and Fear

This might be the most important suggestion to controlling your emotions. If you take away all the charts, economic reports, market indicators, and trading signals, what are you left with? The answer is yourself. Remembering that you are human and that both greed and fear are natural can help stay in control of your emotions. There is nothing wrong with these feelings. However, you don’t need to act on them. It is guaranteed that you will experience these emotions when trading but know that these feelings will pass. Remember, you are the one in control.

Learning to control your emotions takes time and practice. Every person will react differently to certain situations. Constantly looking at your own behavior and how you react will provide great long term advantages. You will begin to form good habits and that will reflect in your trading if you stick with it.