The decisions while trading or investingin the stock market are influenced by various factors like time horizon, expectations of returns and ability to take risks. And you also consider the economic condition of the country, industry trend, current market condition and sentiment of the investors and traders.

However, apart from these prime factors, the psychological aspect also very much influences your trade decisions. Yes, the emotional factor is playing a big role in your trade decisions, and sometimes it can be beneficial, while on a few occasions it can cost you in terms of huge losses in trading.

Humans are influenced by emotional factors, and it is a natural phenomenon that cannot be fully avoided but can be controlled in such situations where your capital is at stake. While trading or investing in the stock market, if you make decisions influenced by emotions, you need to control them. So, right here we are going to discuss how to overcome emotions in trading or trade without emotions.

What is Emotional Trading?

Emotional trading is simply the action of taking trade decisions affected by psychological factors. Meanwhile, while trading, your trading actions are influenced by emotions like greed, fear and hope that are not based on the data, or not using the historical data or any tool and other techniques used to analyse the market.

Data-driven trading is reliable and can give you more profitable results if the market moves as per your expectations. While emotional trading can be completely biased orinfluenced by impulsive decision-making, it can potentially expose the trade positions to unexpected losses.  The emotions can affect the trade decisions in several ways, depending on the behaviour of the trader.

How Emotions Affect Trading?

When you trade, your emotions can encourage you to feel the excitement, greed, fear and overconfidence that can have an adverse impact on the trade decision. In greed, you can enter into large trades in a momentum stock, while in fear, you could miss the right price of entering into the trade position.

Also Read: How to Identify Momentum Stocks for Intraday Trading: 8 Tips

In overconfidence, you can take unnecessary risk in trading, while in underconfidence or fear, you could exit from your trade position that might give you good returns. The emotionally challenged decisions in trading could be a result of impulsive decisions arising from a lack of discipline and oversight.

This kind of behaviour, influenced by the emotional quotient, can lead to short-term or unexpected losses. However, how much emotions affect the trade decisions depends on the types of emotions that affect the trader and how much he or she is influenced while taking the trade decision.

Types of Emotions in Trading

Though there could be multiple types of emotions that can influence the state of the human mind, in trading, a few of them play a major role while making decisions. The emotions can be categorised into two types: positive emotions like excitement and negative emotions like distress.

The positive emotions can encourage traders to enter into a trade position with a positive expectation of getting certain returns. Here you can enter into high-risk trade positions even though the market is not favourable. A trader with negative emotions can avoid trading or take an early exit from a profitable trade position. Similarly, different emotions have different impacts on trade decisions.

Different Emotions in Trading

The emotions that can influence the trader to make decisions with a positive state of mind could be hope, optimism, relief, excitement, thrill and euphoria. On the other hand, when a trader’s emotional factor is influenced by negative emotions like fear, anxiety, depression, panic, capitulation, dependency or denial he would be not able to take the right decision or avoid the trading.

These kinds of different emotions have different impacts on the minds of different people. In the state of overexcitement, you become more self-assured and overconfident, which can encourage you to take the risk you are usually not ready to take.On the other hand, in fear or depression, you would not be ready to take risks and maybe exit from the trade positions in a panic-driven sell-off.
In such a negative emotional state, the negative thoughts come into your mind, and rather than analysing the situations with data, your decisions could be based on anxious thoughts. And in extreme cases, like with despondency, you could give up trading or avoid trading in the market. Here, you need to overcome and start trading without emotions to make decisions based on the data sets.

How to Trade without Emotions?

To trade without emotions, you need to control your emotions at the time of taking trade decisions. Trading without emotions is possible when you either avoid such emotions when it comes to your mind while making trade decisions, or you don’t trade when your mind is highly influenced by such emotions.

The emotions can sometimes be helpful if they have a positive impact on your mind, especially helping to make the right decision in trading. While the negative ones like fear, greed, nervousness or anxiety can disturb your mind, making it unable to make the right decisions or making you pessimistic about your decisions.

Controlling such negative emotions or sentiments affecting your trading decisions is necessary to make your overall trading and investing journey worthwhile. However, there are several ways that can help you to control these emotions or minimise their impact on your trading actions.

7 Ways to Overcome or Deal with Emotions in Trading:

Start with a Trading Plan

Before you start trading, set your own rules to stick to it that will help you to control your emotions in unusual situations. The trading plan and predefined rules for trading will act as a blueprint for you in trading. In such rules, you can include your expected rewards or profitability level from your trades, and how much risk you can take for a particular trade in various market conditions.

Also Read: Golden Rules for Trading in Stock Market: Top 10 Basic Rules

Furthermore, you also need to define your profit targets and stop loss points to limit your losses if the market moves beyond your expectations. You can also set rules for daily, weekly or monthly funds allocation for trading, your profitability expectations and risk appetite for trading.

Discipline with Patience

Discipline is one of the most important factors in your life that also applies when you enter into such trades. Yes, you need to act in a disciplined manner even if the market becomes volatile and does not move as per your expectations. It will help you to make the right decisions without being influenced by your emotions.
And to act in a disciplined way, you need to keep calm and patient when you watch your trade, especially when you earn unexpected, unusual profits or lose a hefty amount of money. Losing patience and acting in an undisciplined manner will disturb your mind, inducing you to make the wrong decisions.

Take Breaks In-between

Non-stop trading for long hours can wear your mind or get stuck between certain thoughts that trigger you to act in your trading action. Trading continuously or sitting on the trading panel for long hours will not allow thinking out of the box; it will badly affect your trade decisions.

Hence, take a break for a while, get a cup of coffee or tea or have a puff of smoke if you have such habits. It will help you gather your thoughts and compose yourself, refreshing your mind to recalibrate the situation in different ways and focuson the most promisingtrading strategies.

Also Read: Top 10 Different Types of Trading Strategies in Stock Market

Control Your Greediness

This is one of the most influential emotional factors that affects most people, whether they are in other businesses or in stock market trading. Though it is not the right habit even in your personal life, as becoming greedy means you are not going to be satisfied with what you have earned till now.

Greediness in trading can lead you to enter into unprofitable trade positions, or you can incur huge losses. You need to give up your greediness, especially if you earned a profit from your trade and the market does not seem favourable. Don’t be greedy, step back and go for the next day’s trading session.

Overcome Your Fear

Taking important decisions with a distressed mind or when you are fearful about the situation can be more drastic in trading. During the mind, you become nervous, not allowing your mind to think positively; instead, the negative thoughts come into your mind, which will definitely affect your trade decisions.

You need to overcome your fear and make your mind free from any kind of anxiety or distress to avoid making a panic decision in trading. To overcome this, you can keep practising in unexpected situations, or you can also meditate, do yoga or go for therapy to deal with such negative emotions.

Learn from the Mistakes

Mistakes in life also bring an opportunity to learn from them and not take the same decisions when such a situation comes again. Similarly, in trading, if your analysis for trading goes wrong or your decision during a particular trade situation is not right, you need to learn from such mistakes. Learning from mistakes in trading will not only help you to avoid repeating the same mistake, but will also help you to deal with such situations in a better way to get better results. And to learn from such mistakes, you need to analyse the previous situations and correlate the decisions with outcomes to find the loopholes or where you went wrong, so that you can take the right decision in trading.

Positive Self Talk & Support

Another useful way to master your emotions in trading is to keep yourself engaged in positive talks. Yes, being involved in the positive talks will help you replace the negative thought patterns with more constructive and affirming statements. And this kind of affirmative discussion will boost your confidence and help you to minimise the impact of the emotional biases while making the trade decisions.

To engage in such talks, you can also take support by exchanging your insights or discussing the strategies and sharing your experiences with other people, most probably traders around you, who will strengthen your emotional spiritand help you in making unbiased decisions in trading.

Wrapping-up

In trading, emotions play an important role while making the decisions to buy a stock or enter into a particular type of trade position. Traders usually experience the most common emotions like greed, fear, nervousness, excitement,conviction and overconfidence. Based on your personality traits and ability to deal with such situations, the emotions can influence your trade decisions.

To overcome the emotions in trading, you need to start with a trading plan that has strict rules to enter and exit from the trade positions. And in unexpected or panic situations, you need to stay calm and be patient tohandle the situation wisely. Don’t trade continuously or overtrade and take breaks to relax your mind to recalibrate your goals, and always learn from your mistakes.

Also Read: Mistakes to Avoid with Algo Trading: 10 Things to Consider