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The Importance of Controlling your Emotions in Trading

Posted on | March 18, 2013 | Comments Off

Emotions such as anger and fear were known to interfere with rational thinking even in ancient times. So it is not surprising that we find ourselves overwhelmed with emotions such as fear when we are trading in highly stressful situations in modern times, with money that could cost us our paychecks for months or years. Many successful traders have stressed the importance of emotional discipline in trading successfully. Emotional discipline cannot come without having full control over your emotions. Therefore, it is easy to see that controlling emotions is of primary importance for any trader.

Controlling emotions is easier said than done. However, it is important to know at least some techniques that you can use if you are feeling overwhelmed with emotions whenever you trade. That is why we bring you the following three useful tips to help control your emotions.

Three Tips to Help you Keep your Emotions in Check

The following three tips should help you control your emotions when trading, whether you are trading in thousands of dollars, or millions.

1.       Develop a System and Stick to it

One way to remain free of unwelcome emotions is to develop a system that you know inside out, and stick to using that system whenever you are trading. This saves you from venturing out into the domain of the financial unknown, and therefore saves you also from emotional unknowns.

You never know what kind of emotions may be unleashed if you use a system that you have never used before. As they say, better the devil you know than the devil you don’t; apply this to trading systems that you use.

2.       Remain in Control of your Life outside of Trading

Your goal here is to not allow yourself to be ruled by emotions – therefore, one way to control your emotions is to remain control in the rest of your life. There are many ways to feel in more control in your life – you could set up short or long term health target, and join a gym or sports club to achieve such goals. You can also remain engaged in your hobbies when you are not working, so that you can relax as well as feel in control of yourself.

3.       Meditate

Most systems of meditations are enmeshed in a philosophical system that tried to totally separate yourself from your thoughts and emotions. Therefore, it is not just a way to relax. Such systems of meditations can actually help you see your emotions as just entities that are part of your mind, and are not necessarily you. However, even when you do not agree with such a philosophical system, you can still meditate to control your emotions.

Warren Buffet is reported to have said that he aimed to be greedy when others were fearful and fearful when others were greedy. His quote nicely sums up our case of not following just the herd mentality, but the emotions that the herd is ruled by. We hope the three tips mentioned above will help you keep your emotions in check even when you are investing millions of dollars.