Traders frequently make the same mistakes over and over, compromising their long-term trading objectives. Emotions often come in the way of making good decisions. How can we put our emotions aside and make objective trading decisions? The first stage is to recognise the seven basic emotions that traders experience and how they can undermine a trader’s long-term prospects. It is for this reason that they are known as the seven deadly sins of trading.
- Fear: Traders acting in fear may quit a position too soon, resulting in a loss, or they may hold on to a losing position in fear of missing out on a reversal. A series of losses can intensify fear, and this is only natural. The ability to recognise and recognise this emotion is the first step toward overcoming it.
- Greed: It’s easy to become addicted to the pursuit of a “big win.” A fast and sharp reversal could wipe out your entire account if you hold on to a position only to generate a little more profit. Profit booking and stop-loss orders come in handy in this situation, ensuring that you exit positions at the appropriate times without allowing emotions to distort your judgement.
- Pride: A trader’s confidence can be boosted by a series of winning trades. As a result, they may pursue trades to demonstrate that they are more knowledgeable, regardless of market conditions. Accepting your faults is crucial. Your pride and ego will prevent you from receiving useful information from other dealers. It has the potential to slow down your learning curve.
- Anger: In both our personal lives and in trading, anger leads to foolish and impulsive acts that we later regret. The markets are guided by a number of forces that are unconcerned by your emotions. Attempting to exact vengeance, on the other hand, is unlikely to yield any results. In trading, losses are unavoidable. It’s a good idea to take notes from them and improve your trade abilities.
- Over-Thinking: While it’s always a good idea to assess your trading methods before putting them into action, doing so too carefully can cost traders valuable opportunities. Using too many technical indicators can result in indications that are conflicting. Many traders suffer from a condition known as “analysis paralysis.” They don’t know how to make the best use of the vast amount of data available to them. The answer is to establish a trading strategy and stick to it.
- Impatience: Before locking in winnings, it’s critical to let your trades take their course. Losses can result from impatience. Follow your entry signals and wait for the system to tell you to exit a position. After each loss, don’t swap trading strategies. Patience is a result of self-control. This is what sets a successful trader apart from a risky gambler.
- Carelessness: Despite the modern electronic trading systems with expert advisors, we cannot negate the value of studying charts carefully and being thorough with market fundamentals. Having a good risk management system in place is essential too. Trading without a plan is risky, especially in leveraged trading, where a small mistake can wipe out entire accounts.
Every trader should find out what emotions tend to rule them.
Identifying and accepting these emotions is the key to overcoming them.
