Greed. Envy. Gluttony. Sloth. Wrath. Lust. Pride… the seven deadly sins. According to ethics, these are the transgressions standing in the way of spiritual progress and purity. In reality though the seven deadly sins represent the dangers of both excess and defect which in modern times can be applied to virtually every aspect of life.
These cardinal vices often play out in the financial markets, leading traders to spiritual ruin or even bankruptcy. For this reason, it’s important to understand how these sins impact our trading behavior. It’s even more critical to identify the root causes of these transgressions so that we can replace them with virtues.
In this series, we take a look at the seven deadly sins of financial trading and how you can overcome them to improve your trading mindset.
Wrath is really just an old fashioned way to describe anger but not just anger .. downright thunder and lightning rage! While behavioural finance spends a lot of time talking about greed and fear, it spends considerably less time focusing on anger and it really is a key emotion in the financial markets.
The financial markets have been known to elicit feelings of extreme anger especially when trading real money in a highly volatile and unpredictable market. Even disciplined traders who follow a solid strategy and employ sound money management techniques lose more trades then they’d like to admit and in such a situation, losing your cool is extremely easy. That’s why it’s important to manage your anger before deciding to become a serious trader.
Everybody loses in the financial markets at some point. Even George Soros and Warren Buffett have lost their fair share of trades and if they can lose then so can the rest of us mere trading mortals. If you truly want to manage your emotions in the market, start by realizing that you can’t control everything and that losses are bound to occur. Obviously we would like to limit the instance of loss in the market. But limiting loss and eliminating it all together are two entirely different things.
There’s no such thing as a completely risk-free trade, but there are tools you can use to limit your loss and eliminate emotional responses all together. For example, easyMarkets recently launched its dealCancellation* feature, which allows traders to cancel losing positions within 60 minutes of placing them and have their funds returned in full. This powerful tool is available in the forex and commodity markets where for a small fee, traders can erase a bad trade up to an hour after opening as if it never happened.
Without tools like dealCancellation, traders must rely on risk management, stop-losses and sound technical and fundamental analysis when deciding on any position. By limiting your position size, you may also control the amount of money you are staking on a given position so even in the event of a loss, you wouldn’t be staking your entire account, but a very small portion of it.
Learn to read the warning signs of your trading wrath… tight shoulders, clenched fists, rapid breathing, short tempered responses with friends and family and if you find yourself getting angry consider taking a break. As a general rule, traders should take a breather after three consecutive losses but whatever your number you should learn to draw a line under your anger and walk away. After you’ve taken a short break, it’s time to get back on track but before you do, be sure to check in on your strategy especially if you found yourself losing big before.
Throughout this whole process, you should be refining your trading methodology, monitoring the market and learning as much as you can about the factors that influence your trades. By doing so, you are hedging against failure. In the event that you miss a position or place a bad trade, the impact shouldn’t cause you to lose your cool.
Instead of wrath, practice patience. A patient trader is a more astute trader.
- Learn to read your anger warning signs
- Walk away from your screen after three consecutive losses
- Use risk management tools such as dealCancellation
Are you a wrathful trader? Tweet us @easymarkets and let us know, alternatively contact our support team for assistance.
“dealCancellation© Option is an ORE patent pending under the patent “Easy Cancellation Option” application number 62334455.”
Source Sam Bourgi- Financial Markets Writer