6 Tips to Avoid Emotion-Based Trading

One of the most challenging issues that traders face is controlling emotions.

It is not easy to contain your excitement when your account balance wins another comma. As if you’re in a trance, greed can consume your mind. It can lead you to throw all reason out the window and ditch your safety plans.

On the flip side, it’s not easy to hold your lunch when the market is in a freefall. And, it feels terrifying not to press the eject button when you think you’re going down with the plane.

The battle between fear and greed can wreck trading accounts and emotionally break traders.

Trading with emotions is not uncommon and not easy to control, even among the most seasoned traders. A clinical study of day-traders found that “automatic emotional responses,” like fear and greed, can “short-circuit” controlled decision-making faculties, resulting in poor trading performance.¹

So, how do you fight emotion-based trading?

While even the most seasoned traders will occasionally succumb to their emotions, these tips can help you separate your feelings from your portfolio.

#1 – Follow Your Trading Plan

One of the easiest ways to reduce emotion is to trade with a trading plan

These simple guides are incredible tools that dictate decisions based on the market’s movement and not on your emotions. As the adage goes, “plan your trade and trade your plan.”

In the simplest terms, a trading plan defines:

  • what we want to accomplish
  • how we’ll accomplish our mission
  • when we’ll use our backup plan (if needed)
  • why we want to make the trade

We only make trades when they align with our plan. The plan stops us from trading out of fear or greed and prevents us from making decisions in the heat of the moment.

Click below for a free trading plan template.

Trading Plan Template

#2 – Utilize Technical-Based Tools

Another way to eliminate emotions is to use technical-based tools. These types of tools are based on math and not on emotions.

Technical analysis uses price action, volume, money flow, and other market data to anticipate future price action.

MarketClub uses both classical and proprietary technical analysis to find and time the swings for over 350K symbols. There are no human opinions when it comes to our tools. The market is telling the story, and we are reading it and reacting.

#3 – Take A Break

Sometimes you have it, and sometimes you don’t. Sometimes you can handle your emotions, and sometimes they are too much to contain. If you’re not able to follow your trading plan, it’s best to take a break.

Now, that doesn’t mean just walking away. It means relying on your exit strategy and automating the process to protect your money for open positions. It also means not opening a new trade if you’re not ready to follow your trading plan.

Take a walk. Listen to a podcast. Send a few emails. When you’re ready to follow your plan, then you’re prepared to enter or exit a trade once again.

#4 – Don’t Micromanage Yourself

If you’re diversifying your portfolio, one position shouldn’t rock your emotional boat. You may want to revisit tip #3 or reconsider your holdings if it does.

But, if all of your trades align with your trading plan and your emotions are in check, then you shouldn’t be micromanaging yourself. That’s unnecessary stress.

Instead, consider taking a birds-eye view of your portfolio or trading account.

#5 – Get Out Of The Hype Cycle

The sky is falling. The market is crashing. The market is a rocket going up, and you don’t have a seat.

How many times have you heard gloom and doom? How many times has the market hype been on level 10? It’s the same song and dance.

While it’s important to stay informed, enough of the same message may mess with your emotions. It’s okay to tune out and only listen to the story of the marketplace (see tip #2)

#6 – Don’t Bet The Farm

If you’re trying to control your emotions, don’t invest more than you can afford to lose. It sounds so basic, but read it again.

Don’t invest more than you can afford to lose.

If you think you can control your emotions when you have your entire life savings in the market, you better think again. The pressure and the fear of losing it all should be enough to stop you in your tracks.

Instead, practice intelligent risk management. Be honest with yourself about your risk tolerance and your goals. If you can’t lose your principal investment, you shouldn’t be trading.


It’s time to get to work.

As challenging as it is (even for seasoned day traders), putting your emotions to the side is a crucial step in your trading journey.

MarketClub is there to help you every step of the way with tools that help you make non-emotional decisions.

Join MarketClub now to see how the scans, signals, and portfolio management tools can help you harness emotions and listen to the market!

¹ Lo, A., Repin, D., & Steenbarger, B. Fear and Greed in Financial Markets: A Clinical Study of Day-Traders. Cognitive Neuroscientific Foundations of Economic Behavior. V 95 (2).

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