What you need to understand about emotions and how they shouldn’t play a role in investing!
Referencing back to my Social Psychology course, the definition of Emotion: “A brief physiological and psychological response to an event that is felt subjectively and prepares a person for action“. There are 6 basic emotions: Fear, Anger, Digust, Sadness, Happiness and Surprise.
As mentioned in the intro, you have to detach yourself from the value of money. Anything can happen on any given day, but no matter what happens you absoluately cannot let emotions take control of you. I mentioned in my intro, that I’m coming from a stocks background. My stock account is 3-5X my Binary Options account, and I play penny stocks which can fluctuate 10-30% a day up or down. Somedays I could be up a couple $100, the next I could be down a couple $100. Within the first few months of trading, I was extremely anxious on these price movements. I didn’t control my emotions and detach myself from the value of money yet. This led to selling too early (for profit and/or loss). Fast forward to today, I could up or down $1000 and you’d probably think I was cold hearted or something, I’m just emotionless now. I don’t care anymore, I just brush it off because it’s all part of the “game”. Refer to the psychology section for different thought processes that you can think of while investing.
Technically, according to social psych, moods aren’t emotions, but mood swings can still affect your trading depending on how you let emotions control you. This is the next issue I’d like to discuss. Every emotion you have prior to, during or after trading can affect your trading! Examples:
Happy: It could be your birthday (why are you even trading?), job promotion, good marks, whatever the case may be. You’re more likely to be optimistic about every trade set up you see making you want to trade more, this could end up good or bad, resulting in another mood change. On the flip side, when you’re in a good mood, you’re happy, no stress, your mind is thinking clearly, you can clearly differentiate a good and a bad set up.
Anger: Someone pissed you off, you’re in an argument with your significant other, etc. You’re basically going to make a lot of careless mistakes. In poker, this is called “going on tilt”, you’re just more prone to mistakes once you get into this zone. The solution is to catch yourself slipping and stop trading!
Remember, NOT trading is actually a form of trading. Sometimes NOT trading is better than trading a BAD set up. | “A lost opportunity is always better than lost money” | “Saving for a rainy day”| “Quitting while you’re ahead”|
Bottomline: You might be sad or mad about losing days or happy about winning days, don’t! Maintain the same mentality all the time, money doesn’t care how you feel, it’s not going to feel sorry for you. If you lost it, iy’s probably gonna be pissed off at you because now it’s gonna be moving out to another owner. So what are you going to do to get it back? Hmm? Stay calm, clear minded and trading will be a breeze.
The catch: You probably saw this one coming, if it’s too good to be true it probably usually is. Unless, of course, you believe in yourself and everything that happens is a result of you and only you. You might be a great chart reader/technical analyst, but sometimes, the markets just don’t feel the same way. Keep in mind, almost 99% of the investment institutions in this world are trading using automated systems. All those billions flowing around the forex market every minute, it’s mostly automatic transactions. As retail traders, we’re at the mercy of the market, we can’t do anything about it. We just watch from the sidelines and try to predict what’s going to happen. As the saying goes, “Hindsight is always 20/20, while foresight is 0/20″, this is something to consider when you view my forex charts. The charts show the history of what already happened, it’s easy to say “WTF was wrong with you, that’s going down, not up!”. Going forward, you don’t know, you’re just predicting price movements. So remember, no matter how good you think are, the market can always screw you over (more on this in the Tutorial section). Just don’t let it get to you, everyone has a losing and winning streak. Sometimes, you just have to walk away.
Psychology
Depending on who you ask, investing can be thought of in many different ways. Unless you’re a rich individual or you’re from a wealthy family and you plan to trade for fun, I’m pretty confident when I say this, the majority of people trading aren’t doing it for fun. Everyone wants to make money not gamble, if you want to gamble or play a game of chance go to the casino or play the lottery. If you want to try to apply some skill/knowledge then investing is for you.