Managing Emotions in Day Trading

Managing Emotions in Day Trading

Great difficulties can be seen once traders start to change their original trading plan once losses start to accumulate.  The main point here is that your trading plan was established for a reason, and it is usually a mistake to deviate from these plans.  These changes usually come at a time when trades are losing money, and these are the cases where it is much more difficult to make logical and rational decisions.  This is one of the most common errors displayed by experienced and inexperienced traders alike.  There tends to be some small differences between the mistakes that traders make at various points in their careers.   But there are also some common themes that are key for understanding the flaws that are involved in the trader’s mindset.  

It is true that trading in the forex markets can at times be a difficult task and losing trades can lead to emotional decisions rather than logical decisions.  This is generally the biggest source of error that both new and experienced traders will face.  At the same time, is should be remembered that you are a trader should not be striving for perfection, as this would simply not be possible in any other intellectual discipline.  Most people taking an SAT test will not score a perfect 1600 every time the test is taken.  But this does not mean that those same people cannot be successful traders. 

Using a Conservative Approach

As long as you approach the forex market with a conservative method that bases all trades on logical market calculations, it will be possible (and, in fact, not very difficult) for you to achieve consistent gains that are repeatable over the longer term time horizon.  “It would be unreasonable to expect that any trader would be able to eliminate any and all mistakes from a daily trading plan but as long as we understand some of the common pitfalls,” said Haris Constantinou, currency analyst at TeleTrade, “it will be easier to see these mistakes in our own trades as they occur.”

In any case, new traders should be looking to start trading with a demo account so that it is easier to see and understand how live forex market conditions progress.  This will enable you to construct your own trading plan without taking on excessive (and potentially expensive risks) and this added knowledge will ultimately enhance your ability to react to changing environments — and place your trades accordingly.  Many new traders avoid this step in the process because they feel they are wasting time.  It is true that you cannot make money using a forex demo account, but this can also help you to avoid losses, which can have an equally positive impact on your trading account balance.