How to Manage the Emotions of Trading

Knowing how to control emotions while trading can prove to be the difference between success and failure. Your mental state has a significant impact on the decisions you make, particularly if you are new to trading, and keeping a calm demeanor is important for consistent trading. In this piece, we explore the importance of day trading psychology, for both beginner and more experienced traders, and give some pointers on how to trade without emotions.


The importance of day trading emotional control cannot be overstated.

Imagine you’ve just taken a trade ahead of Non-Farm Payrolls (NFP) with the expectation that if the reported number is higher than forecasts, you will see the price of EUR/USD increase quickly, enabling you to make a hefty short-term profit.

NFP comes, and just as you had hoped, the number beats forecasts. But for some reason, price goes down!

You think back to all the analysis you had done, all the reasons that EUR/USD should be going up – and the more you think, the further price falls.

As you see the red stacking up on your losing position, emotions begin to take over – this is the ‘Fight or Flight’ instinct.This impulse can often prevent us from accomplishing our goals and, for traders, this issue can be very problematic, leading to knee-jerk reactions. Professional traders don’t want to take the chance that a rash decision will damage their account – they want to make sure that one knee-jerk reaction doesn’t ruin their entire career. It can take a lot of practice, and many trades, to learn how to minimize emotional trading.


Some of the most common emotions traders experience include fear, nervousness, conviction, excitement, greed and overconfidence.


A common cause of fear is trading too big. Trading with improper size magnifies volatility unnecessarily and causes you to makemistakes you normally wouldn’t make if you weren’t under the stress of risking larger losses than normal.

Another culprit for fear (or nervousness) is you are in the ‘wrong’ trade, meaning one that doesn’t fit your trading plan.


Conviction and excitement are key emotions you’ll want to feed off, and you should feel these in every trade you enter. Conviction is the final piece of any good trade, and if you don’t have a level of excitement or conviction then there is a good chance you are not in the ‘right’ trade for you.

By ‘right’ we mean the correct trade according to your trading plan. Good trades can be losers just as bad trades can be winners. The idea is to keep yourself winning and losing on only good trades. Making sure you have conviction on a trade will help ensure this.


If you find yourself only wanting to take trades that you deem as possible big winners, you could be getting greedy. Your greed may have been the result of doing well, but if you aren’t careful you may slip and end up in a drawdown.

Always check that you are using proper trade mechanics (i.e. sticking to stops, targets, good risk/management, good trade set-ups). Sloppy trading as a result of overconfidence can end a strong run.


Planning out your approach is key if you want to keep negative emotions out of your trading. The old adage ‘Failing to plan is planning to fail,’ can really hold true in financial markets.

As traders, there isn’t just one way of being profitable. There are many strategies and approaches that can help traders accomplish their goals.

But whatever is going to work for that person is often going to be a defined and systematic approach; rather than one based on ‘hunches.’ Here are five ways to feel more in control of your emotions while trading.

1.     Create Personal Rules

Setting your own rules to follow when you trade can help you control your emotions. Your rules might include setting risk/reward tolerance levels for entering and exiting trades, through profit targets and/or stop losses.

2.     Trade the Right Market Conditions

Staying away from market conditions which aren’t ideal is also prudent. Not trading when you aren’t ‘feeling it’ is a good idea. Don’t look to the market to make you feel better; if you aren’t up to trading the simple solution may just be to step away.

3.     Lower Your Trade Size

One of the easiest ways to decrease the emotional effect of your trades is to lower your trade size.

Here’s an example. Imagine a trader opens an account with $10,000. Our trader first places a trade for a $10,000 lot on EUR/USD.

As the trade moves at $1 a pip, the trader sees moderate fluctuations in the account. An amount of $320 was put up for margin, and our trader watches their usable margin of $9,680 fluctuate by $1 per pip.

Now imagine that same trader places a trade for $300,000 in the same currency pair.

Now our trader has to put up $9,600 for margin – leaving them with only $400 in usable margin – and now the trade is moving at $30 per pip. After the trade moves against our trader only 14 pips, the usable margin is exhausted, and the trade is closed automatically as a margin call.

The trader is forced to take a loss; they don’t even have the chance of seeing price come back and pull the trade into profitable territory.

In this case, the new trader has simply put themselves in a position in which the odds of success were simply not in their favor. Lowering the leverage can greatly help diminish the risk of such events happening in the future.

4.     Establish a Trading Plan and Trading Journal

In terms of fundamental factors, planning for various outcomes in the runup to key news events may also be a strategy to bear in mind. The results between new traders using a trading plan, and those who don’t can be substantial. Compiling a trading plan is the first step to attack the emotions of trading, but unfortunately the trading plan will not completely obviate the effects of these emotions. Keeping forex trading journals may also be helpful.

5.     Relax!

If you’re relaxed and enjoy your trading, you will be better equipped to respond rationally in all market conditions.

New Zealand Dollar Forecast: NZD/USD Eyes Q1 GDP, FOMC After Downbeat PSI

New Zealand Q1 GDP data in focus as global trade reopens further

NZD/USD finds itself at multi-month support zone. Where to next?

Asia Pacific markets look to Federal Reserve meeting for direction


Asia Pacific markets may stay under pressure this week if US Dollar strength proves resilient. That appears likely as economists and traders

continue to move up the timeline on monetary policy tightening. The Federal Reserve’s rate decision due out Wednesday is the main event risk for global markets in the week ahead.

US Inflation figures (the Consumer Price Index, or CPI) came in hotter than expected last week. The US Dollar rose nearly half a percent, as tracked by the DXY index. That is despite some cooling off in Treasury yields after the bond market faded the initial reaction to the CPI report. Markets appear to now be buying into the premise that inflation is a temporary phenomenon, something the Fed has harped on repeatedly in recent months.

Risk-sensitive currencies fell against the stronger Greenback. The New Zealand Dollar had a particularly downbeat week as local government bond yields fell. The benchmark 10-year rate fell near 11%. Rising milk prices – New Zealand’s top export – failed to underpin the currency, suggesting traders are more focused on monetary policy expectations right now.

BusinessNZ’s May Performance of Services Index (PSI) crossed the wires this morning at 56.1 versus 61.2 in April, according to the IV Markets Economic Calendar. The above-50 reading marks the third consecutive month of growth in the island nation’s service sector, albeit at a slower pace. As with last month, supply chain pressures were highlighted in the report. “The general lack of international tourism and education” were also highlighted as pain points.

Later this week, New Zealand’s first-quarter gross domestic product (GDP) data will cross the wires. An upbeat figure echoing generally positive data flow relative to baseline forecasts in recent weeks (today’s PSI print notwithstanding) may spur some hawkish drift in the Reserve Bank of New Zealand (RBNZ) policy outlook. On the fiscal side, Finance Minister Grant Robertson spoke about a better-than-expected recovery and highlighted stepped-up efforts to fight income inequality.


The New Zealand Dollar has fallen to an area of support from mid-April after putting in a multi-month high in May. NZD/USD’s technical position appears weak at the current level, with a potential bearish Simple Moving Average (SMA) crossover on the horizon, which could add additional overhead weight to the currency pair.

A move higher would face a descending trendline from the May swing high. To the downside, a former area of support directly above the psychologically important 0.7000 area could be a downside target for bears, with the 100-day SMA as possible intermediate support.


Gold Prices Fall as Fed Balance Sheet Hits $8 Trillion, Reverse Repo Surges

Gold prices pulled back for a second day as the DXY US Dollar strengthened

Demand for Fed’s reverse repo facility surged to an all-time high, hinting at excessive liquidity conditions that support the case for tapering

The Fed balance sheet hit a record $8 trillion. A slowdown in the pace of expansion may undermine the yellow metal

Gold prices extended lower during Monday’s APAC session after falling 1.14% on Friday, as the US Dollar climbed alongside longer-dated Treasury yields. Demand for the Fed’s overnight reverse repo facility (ON RRP) surged to a record high of $547.8 million on June 11th (chart below), reflecting swelling liquidity at financial institutions. A reverse repo happens when a central bank sells securities and raises cash from the markets in order to provide stability in lending flows. It usually happens when there is too much liquidity (cash) and demand for interest-bearing securities rises.

This may reignite fears about the Fed tapering stimulus as it appears that the markets have sufficient liquidity to warrant a gradual withdrawal of its monthly bond purchasing program. Investors will scrutinize this week’s FOMC meeting for clues about the central bank’s view of recent economic developments, inflation, as well as ample liquidity conditions.

Looking back to 2013, two years of active reverse repo operations were followed by the Fed’s first interest rate hike after the global financial crisis (GFC) in the end of 2015. This observation strengthens the case of a 2023 interest rate hike if liquidity remains ample. As a result, the DXY US Dollar index rebounded to a one-month high of 90.56, undermining precious metal prices.

Recent comments from Treasury Secretary Janet Yellen also appears to be bolstering the US Dollar and weighing on precious metal prices. She said that a “slightly higher” interest rate environment would be a “plus” for the US and the Fed. This strengthened the reflation outlook while echoing several Fed officials’ comments about starting a tapering debate.

Demand for Fed’s Reverse Repo Facility Hit a Record on June 11th

Gold Price vs. Fed Reserve Balance Sheet – 2012-2021

Gold Price Technical Analysis

Technically, gold prices breached below the floor of an “Ascending Channel”, potentially leading to a bearish trend reversal. Prices also broke a “Wedge” pattern, hinting at further losses with an eye on $1,828 (38.3% Fibonacci retracement) for support.The MACD indicator formed a bearish crossover and trended lower, suggesting that bullish momentum may be fading and a technical pullback may follow

Gold Price – Daily Chart

Risk Warning:

Trading leveraged derivative products such as Foreign Exchange (Forex) and Contracts for Difference (CFDs) carries a high level of risk to your capital.

These derivative products, many of which are leveraged, may not be appropriate for all investors. The effect of leverage is that both gains and losses are magnified. The prices of leveraged derivative products may change to your disadvantage very quickly, it is possible for you to lose more than your invested capital and you may be required to make further payments.

Before deciding to invest in any financial product, you should carefully consider your investment objectives, trading knowledge and experience and affordability. You should only trade in Forex and CFDs if you have sufficient knowledge and experience of the risks involved in trading such products and if you are dealing with money that you can afford to lose. You should seek independent professional financial advice if you do not understand the risks involved.