- Set a Few Unbreakable Rules
- Treat Trading Like a Business
- Extend Your Knowledge
- Write a Trading Plan
- Wrap Up
How many times have you blown up your trading account because you were too afraid to let go or felt unjustifiably good about an investment?
Emotions are powerful drivers in our everyday life.
However, when you want to be a successful investor and make a living out of the stock market, you can’t afford to listen to them (too much).
Still, when you’re just starting, it can be difficult to understand the role your emotions play in taking logical and reason-based decisions.
Plus, if you do understand that emotions influence your decisions, it’s difficult to control them and keep a detached demeanor when trading.
Every experienced investor will tell you that this is a game of probabilities and that you have to avoid fear and greed (the two most damaging emotions in this scenario).
While this is valuable advice, it doesn’t have much practical value when you don’t know exactly how to manage your emotions and what to do with them when you feel triggered.
So, until you gain a bit more experience, here are a few tips to help you move forward:
Set a Few Unbreakable Rules
Emotions tend to run rampant when there are no guiding lines to keep them in check.
So, before you even start trading, create a few personal rules that you are not allowed to break no matter what.
A good rule is to set your risk levels for entering and exiting trades according to your budget.
Once these levels are set, you can’t go over or under them regardless of the situation.
This way, you’ll have guidance lines to tell when an investment looks too good to be true or when you can afford to wait and see if the market will stabilize.
Another good rule is to avoid making decisions with your gut feeling.
Always check for facts and details that provide real insight into an investment or partner.
For instance, if you are working with an investment company, you should check if the person representing it actually has proper certification before putting your trust in them.
Treat Trading Like a Business
Given that you invest personal funds in order to get revenue, trading is a business, just without the formalities. So don’t think of it as a side gig or a hobby.
Create a progress plan for the upcoming months and set attainable goals to check your progress.
Also, it’s a good idea to keep a trading journal and analyze your behavior as soon as you have enough data.
All these elements will help your brain adjust to the idea that trading (even if it’s for personal gain) is a business and will help reduce the involvement of emotions.
Plus, you should add time for trading and time for research to your schedule.
This way, the chances you’ll invest out of boredom or fear of mission out are lower.
Extend Your Knowledge
There’s always something new and exciting to learn in the world of trading!
Plus, emotions like greed and fear tend to get stronger when investors use their gut feeling instead of logic and hard facts to make their move.
So if you feel anxious about your future in trading, identify the areas where your knowledge is lacking and work to fix that.
After all, the big investors of the world (think Warren Buffet) are always looking for ways to extend their knowledge.
Write a Trading Plan
You wouldn’t start a business without a well-devices business plan so why would you venture into trading without a plan?
A trading plan will keep track of your goals and lead you to new ones.
Plus, it’s a fantastic way to take a look at your current trading strategies and check their chances of success.
Also, you’ll have the chance to ask questions that help you understand the main motivation that stands behind your investment efforts.
Lastly, a trading plan is a great way to visualize your goals in the future and understand what you’re trying to achieve.
Many people are fearful of the stock market and feel you need some super-human skills to be a successful investor.
However, trading is not so different from other domains.
All you need is the determination to extend your knowledge and plan your journey using realistic goals.
Of course, it also helps to know a few day trading secrets to diversify your knowledge and learn how to master your emotions.
Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.
The post Blog first appeared on Options Trading IQ.
Original source: https://optionstradingiq.com/how-to-manage-your-emotions-in-trading/