Trading and Emotions

Trading and Emotions

Fear and greed are the emotions that have the most impact on traders and investors, they make us make irrational trading decisions, Can we get rid of them?

I don’t think so, they are part of the human nature. Think about this: why dot you jump into a lion’s cage? Because you are afraid of what could happen to you, right? So, this fear is keeping you alive, the fact that you are afraid is actually helping you. And know the question is, can we apply this in the trading environment? Can we make our fear to work on our favor? Of course we can.

Let’s put it into the trading perspective: when you developed your system, you defined what seemed to you a low risk trading opportunity (i.e. when the stochastic figure when from overbought to the neutral territory, or you got a candlestick pattern in the direction of the market condition, etc). What happens when you get in to a trade when there is no signal? You don’t have a low risk trading opportunity, aren’t you afraid of losing? We all should.

Now, I know most of the time it’s difficult to get rid of these emotions, even the most experience traders experiment them. The difference between experience and novice traders is that, the first ones don’t make trading decisions when there are in a trade, all trading decisions such as: when to close the trade, when to take partial profits, when to add to the position, were made way before they entered the into market, because they know that in the moment they entered the trade, emotions will kick in and will make them have an “irrational” bias, that most of the time makes them make wrong trading decisions.

So my advice here would be to have a well defined trading plan for everything:

  • Under what circumstances you are going to close the trade
  • When to add to the position or when to take partial profits
  • Trading size, where to set SL and TP orders
  • Etc etc etc

This way you won’t have to make them when you are not likely to think objectively.

Trade Safe!

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