The psychological aspect of trading financial markets is utterly essential. Traders are often required to think fast and make decisions on a whim, based on new information. To adequately complete this task, traders need to remain calm and leave their emotions at the door. Also, discipline plays a crucial part of any successful trading plan, as traders need to play consistently by their own created rules and strategies. Bringing emotion into a trading strategy is an easy recipe for disaster.
So what are the emotions you can expect to feel when you are sitting at your desk, looking at charts ready to take a trade, or maybe you are already in one, and you do not know if it is the best time to close your position. One emotion that all traders experience is “fear” because, if you are in a trade and it seems to be going wrong, you are going to start thinking about losing your profits.
This scenario is not uncommon, and I have seen too many traders exit positions early because they have let their emotions overtake their ability to think logically. Surrendering to fear, usually causes traders to realize that if they had stuck with their strategy, they could have made money.
Greed is another emotion traders typically feel while trading. Now, I know most of you have probably heard the phrase “greed is good” from a popular movie. Do not be mistaken, this is not a movie, and greed can turn even the best traders into failures.
Greed can lead to devastating monetary returns because a trader potentially runs the risk of falling victim to whipsaws, thus blowing out their positions. Greed is not easy to overcome since it is often based on an instinct to want to do better, but a trader should learn to take a step back and recognize when this instinct starts to control their thinking.
Being able to recognize if you are an emotional trader can mean the difference between profitability and account implosions. I know the title of this article asks, “Are you an emotional trader?” but we all are at some point. Successful traders are the individuals that can acknowledge this fact and thrive on working to remove these emotions out of their trading plan. So, when it comes to your emotions, you have to ask yourself, “What are you going to do about it?”