Learning how to emotionally detach yourself while trading stocks will allow you, as a trader, to make logical decisions and prevent yourself from making decisions that might eventually cause loss of your hard-earned profits. This applies to all traders–whether you are experienced or a beginner in investing stocks.
More than 50% of Americans currently own stocks. This is because of the several benefits of investing in the stock market that only half of Americans take advantage of. Also, the popularity of mutual funds and index continue to rise, making investing in the stock market easier and safer.
Emotions serve an important function to us humans. It encourages us to take action, helps us to make a decision, as well avoid danger and survive. When it comes to trading, being unable to control your emotions can blow up your trading profits.
For instance, you want to enter a trade too early because you are afraid that you will miss a big opportunity. But the problem is you did not wait for further confirmation, and when the price hits your desired level, you immediately enter the zone and quickly take yourself out early when your confidence is shaken on the trade. This is also called FOMO or “fear of missing out,” and the emotion is the number one factor behind this.
Why Do People FOMO?
FOMO, in trading, tends to enter a trade early or closing trades without enough thought. The reason why some traders FOMO include:
- Fear
- Nervousness
- Conviction
- Excitement
- Greed
- Overconfidence
Patience is a virtue. It is much better that you wait for the opportunity in stocks, instead of chasing them. If in case you miss an opportunity, learn to detach yourself from the situation and let it go emotionally. It is better to miss an opportunity than to lose money and bear in mind that there are still a lot of opportunities out there. So instead of feeling bad and jumping in a trade early, you should determine the market direction and plan ahead your entry points to avoid the dangers of emotional trading.
How to achieve emotional detachment from trading?
Now let us learn how to control your emotions in stock trading with the following techniques.
Study trading
As Benjamin Franklin once said, “By failing to prepare, you are preparing to fail.” If you want to learn trading, stop thinking about it and start taking action. Read books and financial articles, attend trading seminars, find a mentor, or watch video tutorials such as:
- Complete Forex Trader In One Course
- How To Trade Stock Options Level 1: Start Day Trading
- Stock Trading With Candlestick Patterns: Technical Analysis
- Swing Trading 101: The Part-Time Stock Trading Masterclass
- The Complete Guide To Day Trading Stocks For Beginners
- Stock Trading Basics: Beginners Guide To Stock Trading
- The Complete Stock Market Investing Guide For Beginners
The key here is not to focus your attention on only one trading aspect. People fail in trading because they are not properly educated about it, which is why you should study everything about trading. Learning how to trade can be challenging, but worth it.
Set clear goals for detachment
You need to think about it carefully and find signs if you are using emotions in trading instead of logic, and find the motivation why you need to detach from trading emotionally. If you set clear goals for detachment, this will help you give full concentration and self-control from letting your emotions get involved from trade.
Here are some signs you are emotionally attached to a trade:
- You are overconfident after winning a trade and feel miserable or discouraged when losing a trade.
- You are not making decisions objectively or logically and seek other opinions or indicators to confirm your trade.
- You use negative or emotional languages when something goes wrong with your trade.
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Set a trading expectation
Setting a clear and healthy trading expectation will help you in planning and preparing for trading. This is because you will be in the right mindset, and it will also guide you through calculating your strategies to achieve your goals. Therefore, setting an expectation will lead you to the path of success because it gives you better management of your trading activities, as well as personal management.
Practice forward looking trading
Avoid being emotionally attached from risky trades by practicing “forward looking” trading. This is by viewing the bad trades you have made from the past as valuable lessons in making decisions on your future trades. You shouldn’t allow these bad trades to distract you from making real-time decisions. You need to focus on your goals instead of dwelling on your past mistakes.
Accepting losses
If you experience loss, then you need to accept it instead of brushing it off. Every trader has their bad days. A rule of thumb is to not let your bad days cost you more than you earn on good days.
Let’s say your average winning day is $500. Therefore, you should not let yourself lose more than $500 on your bad day. Again, emotionally detach yourself from trade because if you do not have a clear head after your loss and you refuse to accept it, you might end up becoming a FOMO and let fear, frustration, greed, and anger take charge when you are trading. Rebuild healthy confidence and realign your focus after your loss by taking a step back and analyzing the situation.
Apply a happy and healthy lifestyle
Living a happy and healthy lifestyle will change your outlook in life. You will invite positive emotions when trading and combat stress to help optimize trading performance. You can change your lifestyle by changing your morning routine. This is also with the help of applying the power of morning rituals of well-known successful leaders.
Becoming physically fit releases happy hormones called endorphins, dopamine, and serotonin that boost mental wellbeing and motivation, as well as improve focus.
Emotionally detaching yourself from trades takes time, practice, and effort. You are in control of your mental state and emotions in trading, and with enough persistence, you can make logical decisions that will gain you more confidence when trading.
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