How to stop emotions and greed when trading

The biggest problem that most traders face when first getting into the trading industry is not the difficulties of doing technical analysis or understanding the software, but the art of controlling emotions while trading.
The main reason why traders find this difficult is because there is no technical guide or tutorial about it. It’s all psychological and mental, which makes it very hard to learn from somebody else, especially if a person has developed in a completely different way.
Thankfully though, time and time again, dedicating hundreds of hours to trading and gaining experience help with mastering the skill of emotional control.
In this article, we will talk about some tips and tricks that may help you as a trader avoid emotions taking control over your trading habits, or ways you can practice discipline and not let greed steer you into a losing trade.
You will learn the exact moments that could cause emotional stress while trading and how professionals practice trading emotional control in these instances. You will also learn methods to avoid greedy trading and ways you can walk away from a trade with significant payouts rather than staying too long and taking some losses.

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How Successful Traders Effectively Manage Fear and Greed

Most methods that you find with professional traders tend to be very personalized and adapted to their trading style. Because of this, it may be hard to find something that suits your style. However, there are still some methods that are universally applicable to whatever trading style you may have.

Please note that most of these are effective during the beginning phases of your trading career.
  • Avoiding demo trading
  • Using stop orders
  • Goal setting
  • Pre-trading ritual
But listing them in a neat bullet-point graph is not going to be enough information for most. Let’s get into a bit more detail as to why these points are essential to use when learning emotional control.

Avoiding demo trading

Avoiding demo trading may help you control emotions while trading, but it is a significant hit to your ability to learn trading overall. A demo account is extremely useful for a beginner, especially if that beginner has very little capital to invest in the beginning and doesn’t want to “spend” it on experience.

However, no matter how many technical things a demo account may teach you, it will never teach you proper risk management. Why? Because even though you may be very careful with the virtual funds provided to you by the broker, it will never be the same as having your actual hard-earned funds on the line.
 Stopping greed while trading
With virtual funds, there is no emotional connection, therefore no way to stop your emotions from making you place a risky trade. Furthermore, whenever you make a mistake on the demo account and place an unsuccessful trade, it doesn’t really teach much for the long term. Sure, you may remember to do better research in the future, but the emotion of not having lost anything will not stick to you in the long run.
Although it may sound unfair, it’s very hard to train your emotions without using them. This is the primary reason why Forex trading or trading, in general, is so risky and needs to be approached with extreme caution.

Using stop orders

Stop orders are very unique tools that have been designed to help both the busy trader as well as the emotional trader. But its biggest advantage is that it helps you take control of your greed when trading, or more specifically removes greed from the equation completely.
Essentially what these orders do is help you set a specific price point of a financial instrument and register it on the software as a place to either buy or sell something automatically.
With FX, it’s always about closing the trade. For example, imagine that you have a $1000 trade open for the AUD/JPY currency pair. You soon see that the exchange rate is growing significantly and you’re starting to generate a decent payout. At some point you think that you’ve already made more than you were planning to, but what if there’s a chance you can make more?
Control of your emotions while trading

These are the cases where greed simply takes over completely and it becomes almost impossible to control greed while trading.
But, if we add a mechanism that closes the trade for you, we remove that “what if” scenario from your side as a trader. The software doesn’t care about “if” or “may”, it just knows that some point it needs to close the trade, and that point has been indicated by you.
Therefore, by letting the software take care of closing, you remove yourself and therefore your greed and emotions from the process, thus making it slightly more efficient.

Goal setting

Next, we have goal setting, which is not as technical as using stop orders. Basically, what traders usually do is create their trading plan alongside a trading goal. Usually, the trading goal is created for the whole year and in most cases, it’s not calculated with the actual amount of funds you want to generate as a payout, but you calculate via percentage. This is one of the best ways to control your emotions when trading because there’s always a backup plan or something else you can do.
 Trading emotional control
For example, let’s say that your year’s goal is 50% of your current investment, which means that your monthly goals are about 4-5%, which is definitely achievable. But here’s the case, it’s not really 4-5% every month.
Let’s say that you managed to reach your goal of 5% payout in the first month and you start preparing for the next. However, you now have larger capital, so your previous 5% goal for the next month is now slightly less than 5%, making it seem easier. This continues as you go through the months and by the end of the year (if everything went according to plan) your goals are somewhere around 1-2% or so. This helps traders control greed while trading because it becomes progressively easier and more fulfilling to achieve these goals in the long run.

Pre-trading ritual

One of the first things that we usually hear from successful traders when explaining their strategy is the daily routine they have created for themselves. In most cases, people try to keep it as simple as possible, but usually, there is at least one activity they always do before jumping on the computer or mobile device and start placing trades.
How Traders stop emotions and Greed
This is most definitely the most “customizable” approach you can take out of all the tips and tricks highlighted above. Your pre-trading ritual could be anything starting from having a large cup of coffee before the trade or just walking your dog or working out.
In order to control emotional trading, you will most likely need to start trading with a positive mindset. In most cases, the most successful traders tend to get some of the most tedious and unpleasant tasks done before they actually start trading. This helps them receive this very positive emotion of accomplishment for having those tasks finished and helps them approach trading with much less fear and much more confidence.
However, this needs to be done very carefully as well. We don’t want our lack of emotions or excess of confidence to turn into greed when actually placing these trades. Most traders tend to have intervals for their trading duties, such as having 2-3 hours for research, 1 hour for placing the trade, and the rest just adjusting their stop orders and taking the rest of the day off, not touching the charts at all.
This helps with stopping greed while trading as you slowly get the idea that you could place another trade well into the evening when everybody is just closing their positions and waiting for the next session.

Mistakes to avoid when learning to control your emotions

As disheartening as it may sound, there will most definitely be some mistakes that you will encounter when trying to control your emotions. But, as already mentioned before, making mistakes is one of the best if not the best way to finally master emotional control during trades and many other skills as well. However, it does help to know what things you should try to avoid as much as possible if you can help it.

Large trades

Large trades are very alluring because they can generate a lot more payouts. However, they are extremely dangerous no matter how guaranteed some kind of price change may be. The reason why avoiding large trades helps with stopping emotions while trading is because you get to have a shot at a lot more trades with smaller volumes, thus giving yourself a lot more experience in different market trends, even if they are all unsuccessful.

Trading is extremely dangerous and risky and making trades larger increases that risk by at least 10 times over.

Irrelevant assets

The next mistake is trading instruments that you’re not particularly interested in or don’t trade on a regular basis. This clouds your judgment as you don’t know how much is too much or too little. It amplifies your emotions because at some point you will not know what you are doing and could cause panic openings or panic closings of trades.

Comparison to other traders

One of the worst things that traders tend to do when stopping greed while trading is comparing themselves to others. In most cases, they compare themselves to successful traders that more often than not, have much more experience, knowledge, and risk-management skills. This creates the illusion that you are underperforming, when in reality you may be performing amazingly well for your experience level. Comparisons could lead to more risky trades and overall forcing beginners to bite off more than they can chew.

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How traders stop emotion and greed - Key takeaways

Emotion and greed will always be a part of your trading strategy, and in most cases, there’s nothing you can do about that. What you can do is, not focus on completely removing them, but slightly reducing them. There are multiple tools that the trading software can provide for you which help you become more and more confident in your open position and therefore remove any kind of negative emotion or greed. The perfect example of this are the stop orders that help remove your own emotions from trading completely.
Although the demo account helps with technical skills, it’s not very useful for training your emotional control. However, if you want to learn how to stop emotional trading then it may be a good idea to contact your broker and ask that your demo account be credited with only a very small amount of funds. You can also ask that the refill date be increased from 1 month to several. This helps provide a real risk to trading on the demo account as there’s a chance you will lose everything and not be able to trade anymore for quite a while.
Goals in trading are just as important as anywhere else. As long as you have clear short-term and long-term goals, they will help you manage your risk much more efficiently and always be able to control your greed and emotions when trading. Sure they are not 100% effective, but effective nonetheless.

FAQ on how traders stop emotions and greed

Should I avoid demo account trading completely?

No. Demo account trading is very important when you’re starting to learn how trading actually works. It helps with developing technical skills of trading such as what to click to place a trade, how to add indicators and etc. What you should do if you want to practice emotional control on demo accounts is ask your broker if they can credit you much less virtual funds on the account than you were supposed to get. This helps you feel that the funds you have are finite and therefore make you be much more careful with them.

How to stop greed when trading? Do tools help?

There are quite a lot of indicators you can use to give yourself more information about the market trend and feel more confident in your trades. But the real value comes from not a tool but an order type called the stop order. The stop orders help you pre-determine when your trades will close rather than having to close them yourself and having doubts about it.

What routines do successful traders have for preventing greed?

In most cases, successful traders dedicate their morning to personal tasks to get them out of the way and focus 100% on trading. Later they dedicate a significant amount of time to research and analysis before they place their trades. Sometimes, successful traders will do 4 hours of analysis to place just 1 trade.

Does focusing on only one instrument help?

Yes. Although it may not be the best option for payouts, it does help with keeping safe. The reason why it helps control emotions while trading is because you are more familiar with the instrument you are trading. There are very few things that are new to you that you don’t know how to deal with. Therefore you are more prepared for the challenges and get confused much less.
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