By now you must have realized that putting profitable trade isn’t impossible. If you are sticking to your trading strategy, the odds of the bet coming out in your favor can be high. When things are going great in online trading with the best internet plans ever, what’s difficult is to hold onto the profits.
Ask yourself, how many times have you had a big winning trade only to give all the profit back into the next trade? Reinvestment is a good idea but what if the loss you incur on the next trade exceeds the gains? That can be a problem.
The Psychology of Giving Back Profits
As much as you have tried to hold back, you always find yourself in a situation of using your trading profits, especially after a big win. Am I right? Why do we do that? Different experts have their own opinions but they share one in common. It’s called the “recency effect.” It refers to the phenomena of remembering the acts of an event that happened recently as compared to the acts that came before. It is human nature but a trader online needs to understand the implications of this effect.
The more you focus on your recent trading results, the more you lose focus. And when you have made a big win, it is easy to become over-influenced by it. This can make you do all the stupid things. This is no doubt one major reason why traders like to reinvest their profits. They get a false sense of confidence in their trading abilities. And they start believing the next outcome will be a big win, too.
How to Stop Yourself?
Now the question is, how do you stop yourself? Perhaps these strategies might have you keep your emotions intact:
Document your win
The very first thing to do is to update your trading record. You must be wondering why you should do that. Why keep a journal of your profits?
In the trading business, large profits can occur fairly quickly and that can make you over-confident. As you document what happened, it solidifies your win. You are actually mentioning the criteria because of which you won. This also gives you the satisfaction that these gains are yours now. Once you have done that, you will definitely reconsider before reinvesting.
Read More: 5 Best SIP Plan to Invest in India
Trade a break from trading
You may haven’t thought about it because it’s a big deal. It is best if you take some time off before jumping back into another trade right away.
This is what normally happens. So let’s say you made $1,000 in profit. You earned it just a few minutes ago. It is still a disposable capital for you and you haven’t accepted it as your new account balance. No wonder you are more likely to put that money immediately into a new trade.
Even if you win the next trades, you will think of reinvesting again. What if the next losing position wipes out all your gains?
Ok so you shouldn’t give back the trading profits but how can taking a break from trading help? The answer is simple – it will allow your emotions to settle. You will get all the time you need to recollect your thoughts and process all emotions from that big win.
It totally depends on you how long you want this break to be. It can be as short as 1 day or as long as a week. It is best to wait for 24 hours after your big win to place a new trade. I know, I know, you must be thinking trading is your job and how can you take a break from it. Relax! Your job is not just to trade but to know when not to trade.
Practice the Power of Quitting
The power of quitting is a strategy that allows you to take what the market has given you and quit with positive results. The best part is, you can accomplish this in your initial trades. Once you have a winning trade and a positive outcome, call it a day.
When should you quit is a tough question and it depends on your trading plan and market. Some traders are satisfied with one win and they are done. While others like to have 2 to 3 or even more. The latter makes it harder to understand when to stop. It also requires more effort and thought from a trader’s side. Why not work smarter instead of working harder? You don’t necessarily have to trade more to make more money. Go easy on yourself and know when to quit.
Treat Trading as a Business
You must avoid becoming overly emotional when it comes to wins and losses. Like all businesses, the trading business also incurs expenses, taxes, risk, losses and of course, tons of uncertainty. It is very rare for a business to become successful overnight, right? Same goes for your trading business. Treat it like a business and don’t let greed affect your decisions. Make sure you spend a great of effort in your business as Charter customer care does. Keep on learning from your success and failure. This will help you a lot throughout your trading career.
Read More: Best Personal Finance Blogs in India
If you allow giving back your trading profits to spiral out of control, you will eventually make such mistakes that will blow out your trading account.
With these insights, I hope you avoid a situation like this. If you lose your proceeds, it is hard to recover from it mentally as well as financially.
Over-confidence is a trait that develops after a winning period. It is best if you stay humble and treat all trades and each day the same. The CFD trading market has no room for ego. If you attempt to prove the market wrong, you may end up losing a significant amount of money.