How to fight against emotions in trading?
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Emotions are a source of loss in trading. They push you to make irrational decisions, to make bad choices. To become a winning trader, you have to be able to control them. To do this, there are several very simple methods that all novice traders should follow if they do not want to raze their trading account. The objective is to move towards a trading system that does not leave room for improvisation.
Risk management is an essential element in trading. When we know that about 50% of the trades made by individuals are winners but that 90% of traders lose on Forex in France, we can quickly understand the importance of Money management with a small Forex account.
To control your risk properly, you should not risk an excessive percentage of your portfolio on each trade. It is estimated that a novice trader should not exceed 1% risk per trade. If you take several positions simultaneously, you must further reduce the size of your positions so as not to exceed a maximum loss per day (we will come back to this later).
I can already see some voices saying that managing your risk well with a small trading account (less than €1,000) is complicated. Effectively, since the minimum position size in Forex is 1000 units, an account less than €1,000 has to use leverage on each trade and therefore risk can hardly be controlled. In this case, risk management is very simple. You take the minimum transaction size on each position you take.
If you respect that, you'd have to have a run of several dozen losing trades, back to back, to raze your trading account. In other words, it is impossible, especially when you know that nearly 50% of the trades made by individuals win. Traders who raze their trading account are simply those who have used too much leverage. Don't let them go on to say that trading is a roulette. If they lost, it's just that they didn't manage their risk.
That's why you should never open a trading account with less than €500. Below this level, acceptable risk management is not possible. I suggest that you read one of my previous articles: Money management with a small Forex account.
Above a certain amount of loss, a trader can quickly go crazy and want to make up for his losses at any cost. He then increases leverage, takes more risk, no longer follows his trading strategy, makes irrational decisions and this inevitably leads to the total loss of invested capital.
Therefore, before starting to trade using a real account (see the demo account to real account), you must set a maximum loss amount per day/week/month. Set acceptable levels, loss thresholds that you are willing to accept without causing yourself an anxiety attack. For example, you could set a maximum loss threshold of 2% per day, a threshold of 5% per week and 10% per month. These are examples, every person is different but this gives you an idea.
If you reach these thresholds, it's very simple, you stop everything. Stop trading on the day/week or month depending on the threshold reached. This allows you not to crack psychologically, to step back and analyse what went wrong. Losing never makes you happy, but it's part of trading. You must accept this and above all not try to make up for your losses. This is the classic mistake of all novice traders and believe me, it always ends badly.
Trading is an exhausting activity for the nerves, especially when you are just starting out, so don't hesitate to take regular breaks during your trading day, but also take whole weeks without trading. This allows you to recharge your batteries.
From the moment there is money at stake, there is a risk of dependence. Trading is no exception to the rule. A lot of traders mount up losses and constantly redeposit money due to the lure of profits. They can no longer switch off the screen, it is as if they were hypnotized by the price curves. All this can lead to very significant losses. Trading can be a vicious circle.
You must be able to stop trading at any time. Trading must not harm your social life. Taking regular breaks allows you to stay in control of your actions, to disconnect from trading. The objective of any trader is to make money but it should not become an obsession. Even if you win, the goal is not to trade more to make more but to enjoy this money in your life.
Trading is open to everyone except those who cannot afford it. Often, it is people with modest incomes who engage in trading with the aim of changing their lives. We regularly see on the forums the following question "can we make a living from trading?”. The answer is no! Unless you have €200,000 to €300,000 to deposit into a trading account and you are an experienced trader.
With trading, your expectation of profits depends on the amount you deposit into your account. Knowing that a good trader makes 10 to 20% a year, if you deposit €1,000, don't expect to make a fortune! Trading is not a giant casino. The goal is to earn as much money as possible but according to a certain level of risk. If you take too much risk, you will always end up losing your capital.
In trading, everyone does what they can afford. As I told you, if you can't deposit at least €500, trading is not for you. Afterwards, you are free to deposit the amount of your choice. Trading will then be an additional source of income. But be careful, never risk all your savings in trading! I believe that a person should not risk more than 10% of his savings. I'm talking about trading and not investing. Trading is an investment activity but it is separate, since you are in charge of managing your account. Experienced traders may risk more but if you are a novice, do not exceed 10% of your savings. When I say 10%, it's cumulative for all your deposits! If you reach this threshold, you simply stop trading.
Not risking too much of your savings helps you not to put too much pressure on yourself when trading. It allows you to control your emotions better and follow the risk management rules as well as your trading strategy.
To be able to follow your trading strategy, you must already have one. This is the whole point of a demo account that allows you to establish and test your strategy without risk. Be careful, testing a strategy properly takes several weeks at least. During this period, you must be able to avoid taking any trade that is not related to your strategy. If you can't do it, it's because you're not ready to move to a real account. The demo account is also used to teach you rigour and respect for the rules. If you can't do it, then trading is not for you.
A trader should never improvise, especially if he is a novice. You must always know in advance what you are going to do, whatever the market movements. This implies when to open the position, to place your stop loss, when to move it and when to take your profits. Improvisation always leads to loss and is above all the best way to give way to your emotions. From the moment your emotions come into play, you lose. Trading that wins is boring and mechanical. If you leap with excitement every time you win a trade, or if you have cold sweats about the outcome of your trade, it is because you take too many risks, because your position is too large.
Once you have found your strategy, you can open a real account and deposit funds. You then simply apply your trading strategy blindly. If, after several weeks, you realize that it does not produce conclusive results, you can decide to change it. In that case, revert back to a demo account!
Rigorously manage your risk on each trade
Risk management is an essential element in trading. When we know that about 50% of the trades made by individuals are winners but that 90% of traders lose on Forex in France, we can quickly understand the importance of Money management with a small Forex account.
To control your risk properly, you should not risk an excessive percentage of your portfolio on each trade. It is estimated that a novice trader should not exceed 1% risk per trade. If you take several positions simultaneously, you must further reduce the size of your positions so as not to exceed a maximum loss per day (we will come back to this later).
I can already see some voices saying that managing your risk well with a small trading account (less than €1,000) is complicated. Effectively, since the minimum position size in Forex is 1000 units, an account less than €1,000 has to use leverage on each trade and therefore risk can hardly be controlled. In this case, risk management is very simple. You take the minimum transaction size on each position you take.
If you respect that, you'd have to have a run of several dozen losing trades, back to back, to raze your trading account. In other words, it is impossible, especially when you know that nearly 50% of the trades made by individuals win. Traders who raze their trading account are simply those who have used too much leverage. Don't let them go on to say that trading is a roulette. If they lost, it's just that they didn't manage their risk.
That's why you should never open a trading account with less than €500. Below this level, acceptable risk management is not possible. I suggest that you read one of my previous articles: Money management with a small Forex account.
Set yourself a maximum loss per day/week/month
Above a certain amount of loss, a trader can quickly go crazy and want to make up for his losses at any cost. He then increases leverage, takes more risk, no longer follows his trading strategy, makes irrational decisions and this inevitably leads to the total loss of invested capital.
Therefore, before starting to trade using a real account (see the demo account to real account), you must set a maximum loss amount per day/week/month. Set acceptable levels, loss thresholds that you are willing to accept without causing yourself an anxiety attack. For example, you could set a maximum loss threshold of 2% per day, a threshold of 5% per week and 10% per month. These are examples, every person is different but this gives you an idea.
If you reach these thresholds, it's very simple, you stop everything. Stop trading on the day/week or month depending on the threshold reached. This allows you not to crack psychologically, to step back and analyse what went wrong. Losing never makes you happy, but it's part of trading. You must accept this and above all not try to make up for your losses. This is the classic mistake of all novice traders and believe me, it always ends badly.
Take regular breaks
Trading is an exhausting activity for the nerves, especially when you are just starting out, so don't hesitate to take regular breaks during your trading day, but also take whole weeks without trading. This allows you to recharge your batteries.
From the moment there is money at stake, there is a risk of dependence. Trading is no exception to the rule. A lot of traders mount up losses and constantly redeposit money due to the lure of profits. They can no longer switch off the screen, it is as if they were hypnotized by the price curves. All this can lead to very significant losses. Trading can be a vicious circle.
You must be able to stop trading at any time. Trading must not harm your social life. Taking regular breaks allows you to stay in control of your actions, to disconnect from trading. The objective of any trader is to make money but it should not become an obsession. Even if you win, the goal is not to trade more to make more but to enjoy this money in your life.
Do not deposit too much money
Trading is open to everyone except those who cannot afford it. Often, it is people with modest incomes who engage in trading with the aim of changing their lives. We regularly see on the forums the following question "can we make a living from trading?”. The answer is no! Unless you have €200,000 to €300,000 to deposit into a trading account and you are an experienced trader.
With trading, your expectation of profits depends on the amount you deposit into your account. Knowing that a good trader makes 10 to 20% a year, if you deposit €1,000, don't expect to make a fortune! Trading is not a giant casino. The goal is to earn as much money as possible but according to a certain level of risk. If you take too much risk, you will always end up losing your capital.
In trading, everyone does what they can afford. As I told you, if you can't deposit at least €500, trading is not for you. Afterwards, you are free to deposit the amount of your choice. Trading will then be an additional source of income. But be careful, never risk all your savings in trading! I believe that a person should not risk more than 10% of his savings. I'm talking about trading and not investing. Trading is an investment activity but it is separate, since you are in charge of managing your account. Experienced traders may risk more but if you are a novice, do not exceed 10% of your savings. When I say 10%, it's cumulative for all your deposits! If you reach this threshold, you simply stop trading.
Not risking too much of your savings helps you not to put too much pressure on yourself when trading. It allows you to control your emotions better and follow the risk management rules as well as your trading strategy.
Scrupulously follow your trading strategy
To be able to follow your trading strategy, you must already have one. This is the whole point of a demo account that allows you to establish and test your strategy without risk. Be careful, testing a strategy properly takes several weeks at least. During this period, you must be able to avoid taking any trade that is not related to your strategy. If you can't do it, it's because you're not ready to move to a real account. The demo account is also used to teach you rigour and respect for the rules. If you can't do it, then trading is not for you.
A trader should never improvise, especially if he is a novice. You must always know in advance what you are going to do, whatever the market movements. This implies when to open the position, to place your stop loss, when to move it and when to take your profits. Improvisation always leads to loss and is above all the best way to give way to your emotions. From the moment your emotions come into play, you lose. Trading that wins is boring and mechanical. If you leap with excitement every time you win a trade, or if you have cold sweats about the outcome of your trade, it is because you take too many risks, because your position is too large.
Once you have found your strategy, you can open a real account and deposit funds. You then simply apply your trading strategy blindly. If, after several weeks, you realize that it does not produce conclusive results, you can decide to change it. In that case, revert back to a demo account!
