How to control the mind in trading

Engaging in any form of trading, be it forex, commodities, metals, indices, etc, comes with inherent risk. So much so that the impact of that risk, and the challenges that it incurs, evokes a wide range of emotions that often times lead to adverse financial outcomes.

The thing is, the mind is susceptible to fear, greed, and impatience, which can cloud judgement and result in impulsive decisions. Staying disciplined and managing your feelings is critical for navigating the volatility of the markets.

Just how important is mental discipline though?

In the context of trading, the term mental discipline means many things. It’s the ability to stick to a plan. It’s knowing how to handle your emotions. It’s having the strength to stay calm when under pressure. And mental discipline is more than just about being skilled in the most complex trading strategies. Rather, it’s about knowing how to react to the unanticipated curveballs those strategies may throw your way.

It’s about knowing how to maintain your composure when trades move against you, which they undoubtedly will, rather than lose mental control, abandon your strategy, and take unnecessary risk. It is for all these reasons combined that mental discipline is so vital for achieving some measure of success in trading.

Common Challenges in Mind Control

There are a variety of psychological traps that traders fall victim too. While seasoned traders may have developed ways to avoid those traps, beginner traders are often more susceptible to them. So what are these traps that we speak of and how can they be overcome?

1. Being steered by greed rather than data. Greed is a dangerous emotion. It leads to arrogance in decision making. For example, it may see a holding onto a position for longer than necessary in the hope that it will garner more gains. However, the opposite occurs more often than not, with the trade reversing, wiping out all profit.
2. Allowing fear to overshadow reason. Being scared of loss for instance may make the trader err on the side of caution too excessively, exiting trades prematurely or simply not executing at all.
3. Seeking revenge on the market by executing unnecessary trades out of frustration to recuperate losses, which often backfires, resulting in even greater losses.
4. Engaging in reckless trading behaviour due to overconfidence which often manifests as ignoring your trading strategy, investing too much capital in a single position, or overleveraging, all of which significantly increase the risk of major losses.
5. Overanalysing every component of a trade to the point of paralysis, resulting in missed opportunities or hesitation to make decisive moves.

Ways of controlling the mind in trading

Gaining control over your emotions and developing a robust trading psychology is dependent on the implementation of key strategies.

Implement a trading plan

Having a well thought out trading plan is a key component of any trading strategy to increase the likelihood of success. This plan outlines the parameters for how you will approach your trades. It will specify the rules for entering and exiting positions, the risk management techniques you’ll deploy to protect your money, and your budget. By following a plan, decisions typically become more methodical rather than an act of impulsion. Also remains more focused, reducing the risk of emotional interference.

Cultivating mindfulness

The ability to calm one’s mind and control reactions requires emotional awareness. One of the ways to achieve this awareness is by practicing mindfulness. This is because mindfulness helps you recognise your thoughts and feelings and the way they impact your decision making processes. It also assists you in identifying the triggers that create those emotions.

There are many ways to become more mindful. It could be through meditation, or physical exercise. It could be eating healthier to manage your nerves. It can even be as simple as stepping away from your computer, taking a breather, and assessing your mental state before going back to trading.

Managing risk

Another way to calm or control your mind in trading is having effective risk management tools in place to safeguard your funds. Knowing that you’ve taken the steps to protect your capital will go a long way in keeping you less stressed about holding onto your money.

Implementing a risk management strategy requires creating a risk management plan, one that will define the tools you’ll use to manage risk. This includes stop-loss orders, take-profit orders, trailing stops, position sizing, portfolio diversification, etc.

Acquiring a trading related education

An essential part of maintaining a strong mind is ensuring that you’ve learned as much as you can about it. Engaging in ongoing learning is an important part of trading and can be done in several ways.

Consider utilising resources like blogs, podcasts, webinars, and videos to gather as much information as you can about trading so that when you begin executing trades, you’ll have more confidence and mental clarity to take informed decisions rather than acting on emotions. Other ways to learn are undertaking courses, attending in-person seminars, joining online community forums, and so forth.

Signing up for a demo trading account offers the opportunity for getting practical trading experience. By signing up for a demo account with IronFX, you’ll get access to the MetaTrader 4 platform, arguably one of the world’s most famous trading systems. On it, you can implement even the most complex strategies, open and close trades, and learn how to use technical analysis and indicators. By using virtual funds, you’ll have the peace of mind of gaining experience without the risk of losing any of your own money.

Keep a trading journal

Maintaining mental discipline can also be achieved by keeping a trading journal. A journal offers historical reference, allowing you to review past trades, including your thought process and emotional state during each trade.

Having the ability to assess both your successes and mistakes, as well as behavioural patterns will allow you to make tweaks to those behaviours at a later stage.

Setting realistic goals

A sure way of setting yourself up for disaster is setting trading goals that are unachievable. By having unrealistic expectations of yourself, you’ll likely create angst when you aren’t able to meet them. So, maintain mental control by setting objectives that you are better able to meet.

Accepting the losses

Trading is not a get rich quick scheme. Losses are part of the process and accepting that helps maintain a clear mindset and improve the potential for long-term success. By focusing on the process rather than just the outcome, you’ll likely be able to prevent emotional highs and lows from influencing your mindset.

Practise patience

Patience is another key to probable trading success. Thinking through your trades reduces emotional volatility and leads to better decision making. Patience comes with sticking to the rules of your plan, and not deviating from it unless absolutely necessary.

Trading with IronFX

Becoming an IronFX trader means gaining access to a high-quality, flexible experience, multiple asset classes, an extensive range of account types, and fast trade execution. Through this international broker with clients across the globe, you’ll also be able to enjoy seamless withdrawals and deposits, and market access via the MetaTrader 4 (MT4) trading platform, arguably one of the world’s most popular trading systems amongst global traders. The IronFX Academy also offers an abundant source of educational resources to boost one’s skills and acquire fundamental trading insights.

Disclaimer: This information is not considered as investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced, or hyperlinked, in this communication.