How to avoid emotional trading?

It is not about getting rid of your emotions, but rather about understanding and controlling them. To achieve this, a trader must:

1. Have a solid trading plan

You need to have a clearly defined plan - which system you will use (whether it is fundamental analysis or technical analysis or a mix of both), its advantages and disadvantages, how you will identify trades, how you will manage them.

This needs to be accompanied by a trading journal, where you can write down your observations, identify your weaknesses and build on your strengths which can help you avoid common trading mistakes and become a profitable trader. Jumping from strategy to strategy will do no good and emotional trading will take over.

2. Understand their risk appetite

Some traders might be comfortable taking larger risks and manage to keep a cool head even if they are facing a not-so-small drawdown. However, if you are just starting or generally have a lower risk appetite, this is unlikely to end well. You first need to identify your own risk appetite and plan accordingly.

3. Know when to take a break

If you feel stressed and exhausted, you are more likely to make mistakes or engage in revenge trading. It could be a good idea to set a rule for yourself that will define after how many consecutive losing trades you will take a break and stop trading until you have reviewed what happened.

After all, it is not just trading that can cause stress and lead to a losing streak. There could be external factors that are having a negative impact on your mental state, and it is perhaps better to take a break from trading should you be facing such a situation.

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How to avoid emotional trading

It is not about getting rid of your emotions, but rather about understanding and controlling them. To achieve this, a trader must:
1. Have a solid trading plan

You need to have a clearly defined plan - which system you will use (whether it is fundamental analysis or technical analysis or a mix of both), its advantages and disadvantages, how you will identify trades, how you will manage them.

This needs to be accompanied by a trading journal, where you can write down your observations, identify your weaknesses and build on your strengths which can help you avoid common trading mistakes and become a profitable trader. Jumping from strategy to strategy will do no good and emotional trading will take over.
2. Understand their risk appetite

Some traders might be comfortable taking larger risks and manage to keep a cool head even if they are facing a not-so-small drawdown. However, if you are just starting or generally have a lower risk appetite, this is unlikely to end well. You first need to identify your own risk appetite and plan accordingly.
3. Know when to take a break

If you feel stressed and exhausted, you are more likely to make mistakes or engage in revenge trading. It could be a good idea to set a rule for yourself that will define after how many consecutive losing trades you will take a break and stop trading until you have reviewed what happened.

After all, it is not just trading that can cause stress and lead to a losing streak. There could be external factors that are having a negative impact on your mental state, and it is perhaps better to take a break from trading should you be facing such a situation.