Many expert traders will tell you that trading is like playing chess against an opponent who knows your every move. Unfortunately, your biggest opponents in trading are your emotions and your mindset. To be a successful trader, you have to master your emotions by ensuring that they do not cloud your judgment and actions in the markets. You should always monitor your emotions and avoid trading whenever you feel that your emotions are affecting your trading mindset. Do not trade when you are stressed, angry, distracted, or sad.
Why you should never trade when stressed
Stress is an emotion that most people are familiar with as our daily lives are full of situations that we do not like. As a trader, you should strive to minimise the number of stressors in your environment to ensure that you are always focused on the markets. Once you have eliminated components of stress that are within your control, such as your reactions to negative actions by others, you need to focus on minimising the stresses that are part of trading.
Take a break from trading after major losses
You should stop trading whenever you incur major losses as your mind will not be in a good state to make rational decisions after such events. You should also pause your trading activities after a streak of losses or wins as the two types of streaks will have a major impact on your trading psychology. You might become overconfident and take unnecessary risks after a series of wins that make you think that you have some control over the markets. The opposite is true when you incur a series of losses that erode your confidence and could make you miss out on excellent trade opportunities.
Professional traders know that nobody controls the markets and that their profitability depends on them identifying future price direction and trading in line with the current trends. Knowing and applying this principle will ensure that you do not become overconfident when you are on a winning streak or lose confidence after several losses.
Do not trade when distracted
Our daily lives are filled with distractions, including unexpected phone calls, emails and chat messages on social media applications. To be a successful trader, you must eliminate distractions from your life, especially when you are trading.
For example, you might enter into a trade prematurely if you receive a phone call or email when you are analysing the markets. You should pause your trading activities whenever you have to answer a phone call or reply to an email and give yourself adequate time to refocus your mindset before resuming your trading activities.
Do not trade when angry or sad
You should never trade when you are angry or sad about something as these two emotions will hurt your trading. Try to resolve any anger that you might have before embarking on your trading activities for the day. Stop trading if you become angry or sad while you are trading because these powerful emotions could well leave you distracted. At their worst, these two emotions may trigger some form of revenge trading regardless of whether your anger was caused by factors related to your trading or not.
Do not trade when hungry or thirsty
Trading is all about self-control and you need every advantage you can get. Keep in mind that you will have losing trades even when you’re in the right emotional and physiological state. However, you can stack the deck in your favour by ensuring that you are well-fed and hydrated whenever you are trading to keep your mind fully focused on trading.
The bottom line
Trading is a skill-based activity that you can improve over time by mastering your emotions. To master your emotions, you must always analyse your current mindset and avoid trading whenever you feel that your emotions are not balanced. Over time, you will get better at telling whether your current mindset is appropriate for trading or if you need to take a break.