Limiting your emotional exposure to the markets

Lots of advice about the forex markets focuses on managing your funds, limiting your trading costs, and making careful use of your margin when trading. In fact, my previous post was all about that kind of stuff. And it's essential. But equally important to a successful trading career (or hobby) is managing how the market affects your emotions - because it can take quite a toll when things aren't going your way. So if forex is seriously affecting your quality of life, you absolutely must reassess how you're approaching the markets.

In my own trading, I've noticed that the negative impact that bad trades have on my emotions and mental outlook tends to be amplified by a set of bad habits. To the extent I can recognize and control these habits, I can limit how emotionally draining a lousy week in the forex markets can be.

One of my worst habits is checking on my trades too often. The way I've structured my trading system, I really shouldn't need to check on my trades more than a couple of times a day - in fact, I could probably manage with just once a day. But that doesn't stop me from taking a peek dozens of times in 24 hours. And there's no point in checking other than to satisfy my own nagging curiosity because my system only permits trades to be executed once a day, at a very specific time of day.

Inevitably, when I check in on a trade at a time, I really don't need to, it's often not going the way I expected, and I start to get upset. I start to think I need to bail out before it gets even worse. I start thinking in an extremely short-term timeframe completely at odds with my strategy, which seeks gains over months and years of trading. I start to forget that I trade the odds, and there are no 100% odds in forex. I start to question the basic tenets of my trading system. All my trading discipline starts to erode as I begin to second-guess my strategy.

How to control your emotions during market volatility?

Maybe this sounds familiar. So, you may ask, how can a trader avoid this vicious cycle of checking, doubting, rechecking, doubting some more, and undermining the entire trading system they've put so much work into? The simple answer is to limit your access to the market deliberately. Because looking at it too often can cause serious burnout, as I discussed in this earlier post. Set aside just a few times a day (or whatever period you trade in) when you're allowed to look at your trades.

Whenever you're tempted to check in on them outside those times, remind yourself of more productive ways you could be using the time: using historical data to discover new signals, reading about new forex strategies, having a beer outside on the patio, whatever helps divert you from that insidious urge to know exactly what each trade is doing minute by minute. If you can curb that habit and start making better use of all the time you freed up, chances are you'll end up being a much better trader.