Emotional forex traders will be tempted to chase bad money with good, and subject themselves to even greater losses.
Get a Grip
“The sign of an intelligent people is their ability to control their emotions by the application of reason” ~Marya Mannes
Forex trading is not for the faint of heart, nor is it for those who are controlled by emotion. Certainly, it is an emotional thing to engage in an activity of risk and reward with your money. Human nature dictates that when you put your heart into something as vital as your financial portfolio. However, a Foreign Exchange trader cannot afford to wear his heart on his sleeve.
This isn’t a heart matter; it’s a head thing. Let your heart rule in romantic affairs, but use your head when you are trading currencies. If you do not use your head, you may well lose your behind!
Every successful Forex trader develops, or borrows, or borrows and modifies a system. That system is based on facts, observed trends, and expected market behaviors. Your system will guide you, informing you when to get into a trade, and when to get out.
Fear and Greed: Extremes that kill
When you lose on a trade – and if you trade, you will lose on occasion –, it takes a great deal of self-discipline to get out while the getting is good. Emotional traders will be tempted to chase bad money with good, and subject themselves to even greater losses. Greed often compels the emotional trader to try to recoup every lost dime.
The other side of the Forex coin is the need to stick with a good trade and riding it to its full potential. Fear will cause the emotional trader to bail on a deal prematurely. You have to be guided instead by your system. Know how many pips you are risking and how many you stand to gain. Keep your risk and reward in balance.
Greed and fear are two very different motivators, but they each have the same result: they wreak havoc on the Forex market.
Mind over matter
Norman Vincent Peale, Robert Schuller and others have written volumes on the power of positive thinking. Every single champion who has ever perched atop the pinnacle of his profession first visualized himself/herself doing so. Visualize success.
A good trading system is vital, but you have to believe in it – and in yourself – in order for it to bring you the success you desire. Confident traders are successful traders.
Here are some steps to take to avoid the traps of emotional trading and establish yourself as a successful Forex trader:
- –Educate yourself. Someone has said, “The woodsman never wastes his time sharpening his axe.” Read that statement carefully, for it is not saying a smart woodsman just grabs an axe and runs to the nearest tree. Instead, it is declaring that the time spent sharpening the axe, is time well spent. Never stop learning from those who have proven themselves successful trading currencies.
- –Establish your system. Take the time to develop the system that works for you. Test it, prove it, refine it…and use it.
- –Embrace your losses. That’s right! Every experience is a good experience when you keep it in perspective.
- –Eliminate emotions. Keep greed and fear out of the mix.
- –Envision success. See yourself as a successful Forex trader.
There are plenty of times in life that call for an emotional response: a marriage proposal, for instance. Or the funeral of a loved one. Or when your favorite team wins the championship. Those are all fine times to let your emotions take the wheel. The Forex Market, however, is not a good place to do it. Once you have managed to control your emotions and make informed, intelligent trades, you will have plenty of reason to celebrate later.
Happy trading!
[tags]foreign exchange market, forex, forex traders, forex trading, forex system[/tags]
