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how to control your emotions in trading ?
Suppose you have made a purchase in a stock , commodity , currency and are in for a short term ( swing or position trading ) and your trade gets into profit , your brain starts getting happy – releasing a chemical called dopamine – making you happy .. this chemical makes you believe that your profit will go on forever – but you need to control your emotions as follows :
if you are long ( buy low , want to sell high ) – look at the oscillators – stochastics , rsi ( relative strength index ) , macd ( moving average – convergence divergence ) , money flow indicator
20 or low is oversold – a good time to buy
80 or higher is overbought – a good time to get out of your long positions and book profits
along with the following money management rules
- don’t invest more than 2% of your total capital in a single trade
- have a risk to reward ratio of at least 1 : 3
- your losses should not be more than 1% of your total capital – trade with strict stop losses