Like they always say that there is so much power that lies in knowledge. What you don't know, you do not actually know and what you know is what you know. At the end of the day, it all point down to what you needs to know in order to move forward and make use of. The world of trading whether crypto, Forex but today I will be talking majorly about the crypto world is really large. When I mean large, I mean it is so wide.
The world of trading is what you continually keep learning more and more as the day goes by. In fact you can't stop learning about the world of trading because it deals with both experiments and both of information. You lean by what you learn from it and the information you are exposed to.
Today I will like to talk about a very sensitive part of trading which a lot of traders does not pay attention to but constantly affected them and affect their journey. I am talking from experience because I am once or rather still a trader even till today so I understand what I am talking about. Most of the time, we traders pay attention to something like the technical analysis, fundamental analysis, market patterns and many more. Don't get me wrong, all of them are very important. I mean so much important in your trading journey.
But most of the time, a whole lot of us pay less attention to something called the trading psychology and in turn affected our journey on trading. One of the aspect of trading psychology which I will like to talk about today is the Emotional Trading. I believe you will learn quite a lot so stay tuned as you read below. In this post today, I will be talking about Understanding Emotional Trading and hopefully in my next post series, we will talk more details on it.
Introduction to Emotional Trading.
I believe many of us are not hearing the word emotional trading for the first time. But before I dive into what I actually want to talk about today, what is really emotional trading?. Emotional trading according to what I would define is the process or rather habits in which traders make Investments options, decisions and choices based on emotions instead of strategic way of considering investment decisions. The definition might really look so simple but I will say that is just the simple way of defining what emotional trading is.
Now what do I mean by that, this comes to play when investors or most of the time traders allow feelings ranging from fear, fustration, greed to play a crucial role in the way they make decisions in the financial market and the trading world. One of the most popular factors that influences people to engage in emotional trading is fear of missing out (FOMO). A lot of traders due to being influenced by their emotions resulted in buying high and selling low most of the time and that is caused by panic.
I have actually come to discover over the times that Emotional trading has actually become a popular pitfall for both starters traders and even the experience and professional traders. And that is why every traders and investors should learn the act of emotional intelligence. I will like to establish the fact that emotional intelligence is as important as the technical and fundamental analysis in the world of trading.
Importance Of Emotional Management In Trading
Now that I have been able to establish the meaning of Emotiona Trading, one of the ways to curb emotional trading like I said is emotional Intelligence and this will lead me to talk about Emotional Management in Trading.
You can't deny the fact that Emotional management in trading is very important in making wise decisions and overall influencing our trading journey in this world. I will be talking about the four importance of emotional management.
- It Helps In Decision Making:
This is the first importance of Emotional Management I will like to talk about. Like I said earlier, lack of emotional management has led a lot of people in making wrong decisions due to the fact that their decisions are influenced by emotions. Emotional management plays a crucial role in helping traders to make wise decisions based on strategic planning and not based on emotional dictations. By doing so, it will help traders to actually overcome fear, greed and panic factor in decision making.
- It Helps In Risk Management.
I know many of us grow up understanding the fact that life is a risk and if you want to be successful, you must take risk. Well that is actually true but to an extent there needs to be balanced in it. Traders need to take calculated risk and not just anyhow risk. But with Emotional management involved, it actually helps to guide the traders to avoid taking unnecessary risks. This helps traders to actually help in staying disciplined and focused. By doing so, traders or investors can help to overcome the urge to actually engage in wrong risk decisions making. One of the things emotional management helps you to overcome are FOMO. As you continue like that, it helps you to at the end of the day achieve profit much more than loss.
- Consistent Performance.
Like they always say that Result lies in consistency. The more you are consistent, the more you unlock wonderful and positive result that helps you to achieve success. Same way, as time goes on, as a trader if you have master the act of emotional intelligence and emotional management, it helps you to actually achieve it. As a trader, you need to actually understand that learning how to balance your emotions and sticking to the trading plans no matter what might be happening in the market will actually help you to achieve the success you desire in your trading journey.
- Long-Term Sustainability.
As I talked about this last importance before actually moving to the next section of this post, I will like to actually establish the fact that when it comes to the world of trading, the plan is not to be there for the short term, you need to always envision yourself to be here for the long term goal. A lot of traders are not able to be sustained for long in the trading journey because they are not able to actually sustain themselves for the long term because they didn't envision themselves to see the long term factor. Through emotional management, it helps you to develop those habits of being patience, discipline thereby sustaining you for the long term goal.
Common Emotions That Affect Trading Decisions.
When it comes to emotional trading, we need to understand that it actually involves a whole lot of emotions that needs to studied and in this section I will be talking majorly about two which is fear and greed.
- Fear
Fear has really been one of the most strong factor that has been playing a major downfall in the walk of traders in the trading journey. When I talk about fear, it varies in a whole lot of sections, it can really be fear of uncertainty, fear of the future, fear of outcomes of decision and many more. Fear plays a negative impact in the trading journey of every investors or traders because most of the time you end up taking decisions you should not take and you end up not taking decisions you should have taken also rather. One of the popular factors of fear is FOMO which is the fear of missing out.
- Greed
The next example of emotions which really plays a negative effect on almost every trader is what I called Greed. So much has really been talked about greed in the world of trading. The truth about greed is that every one of us have elements of greed. That is just the basic truth. I always believed that every traders actually have greed but the balance point is you understanding that you are to control greed and not the greed controlling you. So many times I have actually come to discover that a whole lot of us whether traders or investors allow greed to control them which should not actually be. And most of the time we end up taking decisions we should not actually take in our trading journey. Discipline your greed by actually having a trading plan.
Conclusion
Having established the foundation of emotional trading today, in my next post, I will be talking more about the consequences and also how to manage your emotions effectively in the world of trading. In conclusion, I will actually like to round up by saying that every trader should prioritise learning emotional intelligence.
Like I said earlier, in as much as technical and fundamental analysis is quite important in your trading journey, I strongly believe that learning the act of trading psychology will go a long way in helping you to achieve that which you need to achieve in the world of trading and thereby helps you to avoid making some wrong decisions.