Controlling emotions that hold you back

So far, we've explored manydifferent aspects of the financial markets and the techniques of trading. Butthere's one key component that affects the success of every trade you make, andthat's you.

No matter how strong orlevel-headed you can be, you are a human being, so you have emotions. Andnaturally your feelings can influence your thinking and your behaviour as atrader.

Controlling emotions

Trading is an exciting andabsorbing activity that can bring you moments of euphoria when things are goingwell, while equally it can be psychologically tough if markets turn againstyou. By understanding the emotions you're likely to experience at every pointin the trading process, you can mentally prepare yourself to handle themeffectively. That way, your feelings won't get in the way of yourdecision-making or harm your potential profits.

In this course, we'll look at someof the emotions you may need to deal with when you trade.

Anxiety and doubt

It's great to be cautious andconsidered in your trading, but if your worries are crippling you that'scounter-productive.

The transition to a live tradingaccount after using 'play' money in a demo environment is one step that worriessome traders. It's a bit like doing a parachute jump: you've learned the theoryand done all the preparation, but making that leap still takes courage.

Live and demo

There are, however, things you cando to make it a little less daunting:

Reflect on the lessons you learnedwhile using the demo account

Apply the same strategies thatbrought you success in demo trades

Follow a trading plan

Start by trading in small sizesuntil you feel comfortable

Use risk-management tools, such asstop-losses

As long as you trade sensibly, usethe skills and knowledge you've already gained and keep your positions modest,there's every reason to expect success. Of course you will make mistakes - weall do - but by managing risk carefully you'll minimise your losses.

Fear of loss

Another time that you mightexperience fear is when a position is moving against you and you begin to see agrowing loss.

Example

Imagine you've bought EUR/USDbecause your analysis strongly suggests it's about to rise. You've consideredthe risk involved and set a stop-loss.

However, as time passes thecurrency pair seems to be stuck in a downtrend. It hasn't hit your stop, butthe rise you predicted remains elusive. You start to feel nervous: should youclose the position now and cut your losses? Should you adjust your stop closer?

Before taking any action, askyourself:

Was my original analysis flawed?

Have circumstances affecting thismarket changed since I opened my trade?

Did I place my stop at the wronglevel?

If everything suggests youroriginal analysis is still valid, and if you've positioned your stop correctlyto protect yourself against unacceptable loss, there's no reason to alter orkill your trade. Have confidence in your original judgment and let things playout - your loss could turn into a profit.

summary

Your emotional state can have astrong influence on the bottom line of your trading, so it's important to learnhow to manage your feelings

Don't allow doubts and fears toparalyse you. Markets move swiftly, and hesitation can lead to missed opportunities

By following a plan, trading insmall sizes and using risk management tools, you'll feel more secure andconfident in your trading decisions

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