How to Manage the Emotions of Trading

You know how to control emotions while trading, which can be the difference between success and failure. Your mental state significantly impacts your decisions, mainly if you are new to trading, and keeping a calm demeanor is essential for consistent trading. In this piece, we explore the importance of day trading psychology for both beginner and more experienced traders and give some pointers on how to trade without emotions.


The importance of day-trading emotional control cannot be overstated.

Imagine you’ve just taken a trade ahead of Non-Farm Payrolls (NFP) with the expectation that if the reported number is higher than forecasts, you will see the price of EUR/USD increase quickly, enabling you to make a hefty short-term profit.

NFP comes, and the number beats forecasts just as you had hoped. But for some reason, the price goes down!

You think back to all the analysis you had done, all the reasons that EUR/USD should be going up – and the more you think, the further the price falls.

As you see the red stacking up on your losing position, emotions begin to take over – this is the ‘Fight or Flight’ instinct. This impulse can often prevent us from accomplishing our goals, and for traders, this issue can be very problematic, leading to knee-jerk reactions.

Professional traders don’t want to take the chance that a rash decision will damage their account – they want to ensure that one knee-jerk reaction doesn’t ruin their entire career. Learning how to minimize emotional trading can take a lot of practice and many trades.


The most common emotions traders experience include fear, nervousness, conviction, excitement, greed, and overconfidence.


A common cause of fear is trading too big. Trading with improper size magnifies volatility unnecessarily and causes you to make mistakes you usually wouldn’t make if you weren’t under the stress of risking more significant losses than usual.

Another culprit for fear (or nervousness) is you are in the ‘wrong’ trade, meaning one that doesn’t fit your trading plan.


Conviction and excitement are vital emotions you’ll want to feed off; you should feel these in every trade you enter. Conviction is the final piece of any good trade, and if you don’t have a level of excitement or conviction, there is a good chance you are not in the ‘right’ trade.

By ‘right,’ we mean the correct trade according to your plan. Good trades can be losers, just as bad trades can be winners. The idea is to keep yourself winning and losing on only good trades. Making sure you have conviction on a trade will help ensure this.


If you only want to take trades that you deem possible big winners, you could be getting greedy. Your greed may have resulted from doing well, but if you aren’t careful, you may slip and end up in a drawdown.

Always check that you use proper trade mechanics (i.e., sticking to stops, targets, good risk/management, and good trade set-ups). Sloppy trading as a result of overconfidence can end a strong run.

Learn more about managing greed and fear while trading.

“My worst trades – and a few of them – have all been when my best-laid plans are thrown out of the window when I lose discipline.

‘I didn’t use correct set-ups and stopped; I thought I was ’better’ than the market; I doubled up when I lost and lost more, and I put more money into my trading account to chase my losses.

‘I lost control of my emotions and traded when I should have looked without emotion at my position and cut them and moved on. Easy to say, difficult to do, but a must for any trader looking for long-term success.”


Planning your approach is vital to keep negative emotions out of your trading. The adage ‘Failing to plan is planning to fail’ can hold in financial markets.

As traders, there isn’t just one way of being profitable. Many strategies and approaches can help traders accomplish their goals. But whatever will work for that person will often be a defined and systematic approach rather than one based on ‘hunches.’

Here are five ways to feel more in control of your emotions while trading.

  1. Create Personal Rules

Setting rules to follow when you trade can help you control your emotions. Your rules might include setting risk/reward tolerance levels for entering and exiting trades through profit targets and stopping.

  1. Trade the Right Market Conditions

Staying away from market conditions that aren’t ideal is also prudent. Not trading when you aren’t ‘feeling it’ is a good idea. Don’t look to the market to make you feel better; if you aren’t up to trading, the simple solution may be to step away.

  1. Lower Your Trade Size

One of the easiest ways to decrease the emotional effect of your trades is to lower your trade size.

Here’s an example. Imagine a trader opening an account with $10,000. Our trader first places a trade for a $10,000 lot on EUR/USD.

As the trade moves at $1 a pip, the trader sees moderate fluctuations in the account. An amount of $320 was put up for margin, and our trader watched their usable margin of $9,680 fluctuate by $1 per pip.

Now, imagine that the same trader places a trade for $300,000 in the same currency pair.

Now, our trader has to put up $9,600 for margin – leaving them with only $400 in usable margin – and the trade is moving at $30 per pip.

After the trade moves against our trader only 14 pips, the usable margin is exhausted, and the trade is closed automatically as a margin call.

The trader is forced to take a loss; they don’t even have the chance of seeing the price come back and pull the trade into profitable territory.

In this case, the new trader has put themselves in a position where the odds of success were not in their favor. Lowering the leverage can significantly help diminish the risk of such events happening in the future.

  1. Establish a Trading Plan and Trading Journal

Regarding fundamental factors, planning for various outcomes in the run-up to crucial news events may also be a strategy to bear in mind.

The results between new traders using a trading plan and those who don’t can be substantial. Compiling a trading plan is the first step to attacking the emotions of trading, but unfortunately, the trading plan will not completely prevent the effects of these emotions. Keeping forex trading journals may also be helpful.

  1. Relax!

If you’re relaxed and enjoy trading, you will be better equipped to respond rationally in all market conditions.

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