Emotions and Spread Betting….

Most successful traders believe that to do well in their field, rather than understanding winning strategies, trading systems and money management techniques or being generally academically strong, the most important element is emotional. This does not occur to novice traders. Emotional trading will cause problems in over-trading, trading costs and depression, and a person could worsen the situation by blaming everything other than themselves.

A trader must be able to deal with bad times. Some bad times are unavoidable. Successful traders are satisfied if 70 percent of their trades are winners. Some even manage when less than half are winners.

If you close a position, you might torture yourself with the prospect of the money you could have made by keeping it open. Conversely, greed or misplaced hope could cause you to hold on to a winning bet for too long. Research has shown that traders stay twice as long with losing bets that are going down than with winning bets that are going up. If a trade goes bad, it is best to cut your losses and sell. A novice may well not realise that in this situation, they should accept a small loss and learn a lesson.

Fear can also be a hindrance. If you lost money on your most recent trade, you might hesitate to make another trade despite your system telling you it will be good. The trade set-up did not change, nor did spread betting companies or the risk-to-reward ratio, and the market is the same old market, however you missed out on a great trade because your feelings changed. You must recognise that your feelings do not reflect what is happening in the market.

Patience is crucial. It is tempting to take marginal trades just so that you feel as if you are doing something, but you should place a bet only then there is a definite opportunity to make money.

Normalcy bias is the refusal to have a contingency plan for adverse events. You should be prepared for bad times. Research has shown that people ignore evidence which contradicts their beliefs.

You should always be aware of the emotions you are feeling, and then ask yourself what is causing you to feel that way and whether it is appropriate. To remain emotionally healthy, you should take time out from the market to recharge your batteries. The market can be mentally draining. You can minimise the impact of emotions by having pre-set entry and exit points and stop-loss orders.

Emotions have a great effect on spread betting. This could actually be encouraging, as while it is not possible to control markets, you can control your emotions.

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