Coconut Creek, Florida, United States, September 25, 2023 – Let’s start off with greed and FOMO. You probably heard about this term if you have spent some time in the trading space. FOMO is short for “fear of missing out”. Imagine a rocket taking off that you wanted a ticket for but didn’t get it. Would you chase the rocket? No, of course not.
Never chase a rocket, translated in trading terms means: If the price of an asset is taking off, do not try to chase it. Chances are you will join at the top and enjoy the whole crash back to the bottom.
Maybe you even heard of the “fear and greed” index. This a tool displaying the overall market sentiment ranging from extreme fear to extreme greed. When the market gets greedy, you generally want to exit your position. Vice versa, if the market is in extreme fear, you want to look for new buying opportunities.
But of course, you will not buy blindly based on this single tool. We will cover later how to properly enter and exit trades!
Fear, uncertainty, and doubt
As mentioned above, FOMO and greed can absolutely destroy you in the trading market. Just like fear or FUD (fear, uncertainty, and doubt) can do. The markets generally act irrationally and in panic, which often leads to price drops of unjustified proportions.
Those generally offer good opportunities to get assets at a massive discount. There is a great interview with Lance Breitstein, a professional trader, going over those so-called “capitulation trades”, which is definitely worth listening to! It is a whole hour full of value.
Euphoria
The next major emotion in trading is euphoria. This is a very overlooked one, as euphoria is normally perceived as something to strive for. In trading, however, this is a very big trap to fall for. Euphoria usually happens after a big win or a winning streak. While it is great to win a lot of trades and make a lot of money, euphoria can lead to irrational decision making, such as using too much money or not sticking to your plan. More often than not, this irrational behavior due to overconfidence will lead to massive losses in the market.
Sadness and depression
Sadness and depression are another state of mind that you should never be in when trading or even being in positions. If you feel sad or anxious because of a trade you are in, you simply put too much money into the market. So size down! Play with less money.
Ask yourself this question: If I enter this trade, could I go to sleep without worrying? If the answer is no, then you are doing something wrong, and your market exposure is too big. If you feel depressed because of factors outside of trading, like a breakup or a very stressful phase at your job, take a step back from trading and come back when you are feeling refreshed. Sadness, depression, and anxiousness can lead to poor decision making just like euphoria.
Rage and anger
The last emotion we go over is rage and anger. This is maybe the most dangerous one and leads to costly mistakes. I experienced this myself two times, and it always ended the same way: I lost a lot of money, one time even everything that I had in my trading account. After a losing streak in trading, instead of taking a break, I just kept going. After losing the first trade, I lost the second trade too. And the third, and the fourth. Instead of slowing down and taking a step back, instead, I doubled down on my position size and opened a trade in the opposite direction. Needless to say, this didn’t work out in my favor.
How to keep your emotions in check while trading
Okay, what can we do when we are not allowed to feel sad, euphoric, depressed, anxious, angry, happy, fearful, or regretful?
As hard as this might sound: Emotions have no room in trading. You must function like a machine. While this is a usual trait of a psychopath, most people (just like me) do have emotions. So, how can we make sure to keep our emotions in check while we are trading cryptos, stocks, or other assets?
There are a few techniques that you can use to reach optimal focus and a clear and rational state of mind.
- Meditation can help you relax and get a clear mind. It does not even have to be long. Just a 5-10 minute breathing exercise can drastically increase your performance, rationality, and judgment.
- Another thing that I still do every day is exercise, running especially. Going for a 15-30 minute run before trading or doing a full gym session gets me into the right mood. After that, I will be relaxed in my chair, and I can’t think straight without feeling any emotions that can hinder me from making rational trading decisions based on facts rather than emotions. The reason I like running so much is that it conditions your mind and increases your discipline a lot, as discipline is one of the most important things when it comes to trading.
- If you notice you can’t manage your emotions, just take a step back. That is totally fine. Take a break and come back to the markets once you are back to zero. Remember this: Sometimes, not taking any trade is the best trade.
If you master those things mentioned above, you will already be ahead of 90% of the competition. But of course, having your emotions in control alone will not make you a profitable trader. Yet, it is not just a great foundation to begin with, but absolutely crucial.
The next step is to create an overall trading plan that you will stick to and execute without any deviations. Once you create a trading plan, you stick to it. Discipline is the keyword here.
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Contact Info:
Name: Henry Clausen
Company: Alternative.me
Email: support@alternative.me
Website: https://alternative.me/
Address: Lyons Technology Center 4661 Johnson Road, Suite #14, Coconut Creek, FL 33073, USA
