Trading in the forex market can be influenced by emotions if the traders are not in control. They have to keep calm and avoid decisions based on their emotions or gut feeling and focus on logic.

As a trader, to manage your emotions you can use a few well-recognized techniques for success in forex trading.

How to Manage Emotions of Trading

1. Understand Your Limits

The first tip to managing your emotions is developing the discipline to overcome your feelings. Some traders engage in more business than their resources can support.

The forex market is not sympathetic to traders who engage in overtrading, especially those that are starting out in the market and have zero experience.

To discipline your emotions, start by writing down your trading rules and developing a trading plan. As opposed to having them in your head, this will put you in check such that when emotions kick in the course of trading, you will not deviate from the rules.

Having a daily, weekly or monthly schedule of trading goals will help you follow it religiously. When you know your limits, you will know when to step away from your PC and find a distraction to avoid making forex blunders out of emotions.

2. Know the Facts of Your Trade

Forex trading requires you to be knowledgeable about the currencies involved. If you are trading EUR/USD you should be able to determine whether it’s going up or down and be in a position to support such conclusions. This will help you to confirm whether the information you have at your disposal is accurate.

Do you know how forex works? Don’t let your attitudes and paradigms influence your trading decisions, instead understand the information on your trade. If possible, find people you can discuss trading with, attend educational talks and webinars and get enlightened about forex trading.

3. Trading is a business- Treat It As Such

Some traders treat forex trading as a hobby and they miss out on the whole picture of the business. Treating a trade as a business will force you to come up with the necessary elements for success. For instance, the business will expect you to outline a trading plan that can be executed on a trading day.

This will enable you to match your trading psychology and trading strategy for better performance. Having a trading plan will also ensure that as a trader, you follow your trading rules and don’t deviate when a trade goes contrary to your expectations.

Looking at trading as a hobby will cause you to fail in the implementation of your trading plan and the outcome might not be very pleasant.

4. Take Breaks in Between Trades

When you have an unfavorable moment of trading and you run into a loss, take some time to take it all in and avoid rushed decisions. Following each trade with a break will give you time to look at your trading journal and deliberate before taking your next course of action.

Trading occurs rapidly and you can get caught up in the heat of the action. This can cause you to make irrational decisions based on poor judgment. Don’t let one bad trade ruin the profits made in favorable moments.

5. Honor Your Stop

When running into losses a trader should have a get out point. After a set number of hours, stop and take a good long break. Mistakes are bound to happen when one trade follows another. When a fresh trade is entered into the market, make a point of entering a stop loss as well.

However mental stops are discouraged. Using mental stops allows decisions largely based on emotions which might be misleading about a trade. Taking such risks as a result of mental judgment might cause you losses right from the get-go. Have a well laid down get out point and honor your stop to review your strategy when it is necessary.

6. Don’t React Out of Anger

Emotions can kick in when a trade is not going according to expectation. Anger can lead to revenge trading resulting in even worse outcomes.

You will not recoup losses by simply throwing yourself back into the trading system without reason. Hold out. Consult your trading plan and follow it without deviating so you don’t make emotions-based trade decisions.

7. Concentrate on Your Trading Strategy

Constantly keeping track of profits and loss of each trade might raise your emotions. Consider paying attention to your trading strategy during the day and do the math on how well or poorly you did at the end of the trading day. This will help you avoid making irrational decisions as you keep your emotions in check.

8. Follow Your Plan

Failure to keep your focus on the plan might cause you to change your overall approach and trading strategy when the results are not in line with your expectations.

Your trading plan should be your go-to point of reference when you are determining your next move. This will ensure emotions don’t get in the way of decision making when preparing for trades.

9. Avoid Holding onto Trades for Too Long

Traders tend to unnecessarily marry their positions, choosing to stubbornly hold on to a trade with the hope that it will turn around. If a trade is unfavorable, close it down as soon as possible and move on.

Failure to take a loss might allow other emotions to kick in and if you are not careful, holding on will result in further losses. Keeping an open mind will allow you to catch new trading opportunities and develop new moves. Has a trade gone bad? Consult your trading journal for the next move.

10. Only Use Speculative Money

Do not trade with money that you can’t afford to lose. Using your kids’ college money or your retirement funds might not be the best financial decision you ever make.

If you lose such monies in forex trading it might be difficult to recover from such a loss. If you have money for speculative purposes then, by all means, go for it. Otherwise losing your hard-earned money will destroy your emotional capital to unrecoverable levels.

Since it is almost impossible to completely divorce yourself from your emotions while trading, it is best for you to understand your strengths and weaknesses as a trader in order to choose a trading style that suits you.