We created a course on how to control your emotions with José Mourinho, which covers the psychology of trading, tips on controlling your emotions, and more.
As XTB’s brand ambassador, José Mourinho has shared his thoughts on how he deals with unexpected events, controls his emotions, and manages situations that don’t go as planned.
In this article, you can learn what the psychology of trading is, how you can improve your trade management, including what is fundamental analysis, how to manage risk when trading, and how to conduct market analysis, as well as find useful tips on how to control your emotions.
In this lesson you will learn:
Trading psychology, or having the right mindset for trading, can be just as important as knowledge, experience, skills and strategy when it comes to reaching your trading goals. After all, being able to stick to your trading plan and make the most of your knowledge and skills depends entirely on your ability to control your emotions and act rationally no matter what.
The two main aspects of trading psychology are discipline and risk taking, as they are the ones that determine whether or not a trader is able to actually implement their trading plan. The two main emotions associated with trading psychology are fear and greed, as they can both cause traders to forsake their plans without much thought. This is why managing your emotions is a critical aspect of successful trading.
Having the right mindset is half the work, while having a solid trading plan in place is the other half. For this, it’s important to be proficient in both technical and fundamental analysis, and have clearly defined risk management principles even before you start trading.
Managing risk when trading largely depends on three crucial elements: having your personal trading strategy, being able to control your emotions, and good money management.
Developing your own trading system means you have a plan in place that works for you, your trading style and goals. The idea of coming up with your own trading strategy might seem daunting at first, but it actually entails nothing more than consistent application of the rules that you set for yourself, such as specific entry and exit points, trading in the direction of the prevailing trend, using moving averages, or using a stochastic indicator to help determine whether or not it’s safe to enter a trade after a moving crossover. Whatever it is, it should be unique to you and your needs.
Most traders notice a difference in their results when they switch from a demo to a real account. The main reason for this is that when real funds are involved, psychology, or your ability to control your emotions, plays a crucial role. Emotions such as fear and greed, as well as excitement, can stop traders from sticking to their plans. This is why being able to control your emotions is key to actually being able to implement your carefully thought-out trading strategy.
The third element of risk management is money management. This is the part of your strategy that specifies the size of the position, the amount of leverage used and any Stop Losses and Take Profit levels. It’s what can help traders to maximise any profits while minimising any losses.
In this last section of the lesson on how to control your emotions, we’ll take a look at the two most common emotions associated with traders, and what you can do to keep them under control.
Most often, fear occurs in situations where the trader is trading too big. When you’re under the stress of risking larger losses than normal, it can cause you to make mistakes you normally wouldn’t make. Another common cause of fear is the fear of being in the ‘wrong trade’. Both of these problems can be solved by having a solid trading plan and sticking to it no matter what happens during the trade.
These emotions most commonly occur when a trade is doing exceptionally well and the trader decides to deviate from their stops and targets, and keep pushing. Greed often leads to a strong run ending in a loss. Again, this can be prevented by simply being aware of the downfalls of becoming greedy and overly confident, and sticking to your initial trading plan.
Below you can find José Mourinho’s exclusive interview with XTB. Here, José reveals his personal strategies for managing emotions.
I think it is all about preparation; when you prepare for all eventualities, it allows you to adapt quicker and also eliminates the surprise element. When I was at Porto, I told the team I expected to draw United, the hardest team in the draw - we then drew United, but we were prepared so it was as we expected, and we weren’t worried about the challenge ahead.
I think the biggest surprise can be when something goes perfectly to plan, just as you predicted, because, in football, you almost always expect something to happen that you don’t prepare for. When we won the Champions League final with Inter Milan, it was a perfect game in that sense. What we prepared for, we executed, and I felt we were always in control.
It is incredibly important [to surround yourself with the right people], and I rely on my team a lot. The squads these days are so big, and there are so many tasks for a manager that you need to know you can maintain quality levels even when you aren’t there. You also need to be challenged and supported when it comes to key decisions for the team.
If you want to continue learning, make sure to visit our Trading Academy, where you can find beginner, intermediate, and premium courses that can help you improve your trading skills.
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