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Why Avoiding ‘Emotional Trading’ Is Especially Important In the Current Climate

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A lot of people now look to online trading in one form or another to try and earn some profit from their capital. Whether you trade stocks, commodities, or foreign currencies, there are some great online platforms like Oanda that make it easy for anybody who is interested in getting involved with the markets to become a trader.

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When you are first learning to trade something like forex, you come across plenty of advice, and one of the most salient points you will see reiterated by experts is to set up a strategy, and trade according to it. This means resisting any emotion based trading that takes you outside of your strategy’s parameters.

Emotional Trading

Emotional trading is an easy trap to fall into. You may feel like making trades that aren’t in line with your rational strategy as a response to unexpectedly losing money, or because things are moving quickly and you feel like your gut is telling you to take a risk. Whenever you are driven by panic, excitement, or other adrenaline related reactions, you can encourage yourself to take risks that are bigger than you were prepared to take when you designed your strategy. As you might expect, these can be your worst trading decisions.

Why the Current Climate Makes Emotional Trading More Common

2016 and 2017 so far have been years where a lot has been going on in politics and macroeconomics, and things that came as a surprise to many economists and analysts, such as the Brexit referendum results, Trump being elected, and now the surprise UK general election, have occurred. Most people feel fairly strongly about these events themselves, which can contribute to emotional trading, but the rapid and volatile market reactions to news events is the main reason why emotional trading is an easier mistake to make than in more stable times.

Avoiding Emotional Trading

Even experienced traders sometimes make the mistake of trading based on their hearts rather than solid analysis, and while of course taking a big risk can sometimes pay off in the short term, succumbing to emotional trading never works out as a long term approach. Make sure you stick with your own strategy, only trading when the conditions you yourself set out are there. Make sure too that you don’t weigh your own sentiments on a news event or market activity higher than overall market sentiment, and place proper technical analysis above both.

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