HOW TO MANAGE FEAR AND GREED TO EMERGE AS A
PROFITABLE FOREX TRADER…
One of the biggest mistakes a forex trader can
make is to ride through a swing that is going
against them only to close out once the market
comes back to break even.
This type of trading is emotion-based and will not
lead you to becoming a profitable trader.
Fear and greed are also strong emotions that will
keep you in a trade well past the time that you
should have cut your losses – and it will also get
you out of a trade well before your profit target
is hit.
LEARN FROM MY EXPERIENCE…
As you may know, I run the Trading Live on The
News trade room – but in addition I also managed a
pooled Forex managed account. Because I am
actually in the trenches everyday trading – I know
full well from first hand experience all about the
emotions that accompany being a trader.
THE TWIN EVIL PLAYS OF FEAR…
When a trade goes against you, you begin to
experience fear. Fear does two things. First you
start to worry that it might not come back and
you’ll lose some money.
If you plan to be a trader – be aware that you
will lose occasionally, so you need to prepare
yourself for this. You must have a plan in place
prior to entering so that if the market does begin
to swing against you, you will have already mapped
out what your reaction is going to be so you don’t
make a decision spawned from fear.
The second way fear can affect you is actually the
exact opposite. Fear can cause you to hold on to a
losing position long after your planned risk level
is passed. And one of the worst things a trader
can allow is for a trade to pass their pre-planned
stop level and go further against them.
The SERIOUSLY BAD part comes when the trade
actually pays out for you. If a trade comes back
into profit and you make money you have now set
yourself up for a huge failure (in the future).
AWAIT THE DAY FEAR AND GREED DELIVERS A MAJOR
NEGATIVE PAY-DAY…
I can assure you that there will come a time when
you don’t cut your losses and greed holds you in a
trade and it will not come back. With every move
against you fear will take a tighter hold on you
and keep you from closing the trade because you
keep telling yourself that it will come back.
Especially if you have held out on previous bad
trades and made out with good profits. Greed is a
powerful thing that works hand in hand with fear
and if not controlled properly will hamper any
chance you have of being a good trader.
OUR RECENT USD/CAD TRADE ON THE MANAGED ACCOUNT
What spawned this article is the recent long term
trades made on the USD/CAD made on the managed
account. We saw a pretty large open position draw
down on that trades before paying out. however,
this drawdown was controlled through hedging and
our target was met as expected and paid out
extremely well. Additionally the risk we took was
not more than the reward we stood to make.
The sad thing is I had a few investors who
weathered the move against us and then closed
their accounts once we got back to around break
even.
This is the kind of emotion that dooms traders
before they even get started. These investors
missed out on hundreds of pips because fear got
the best of them.
The same thing happens to individual traders every
day.
HOW TO MANAGE FEAR AND GREED…
I have been in all of the above situations and can
assure you that it is not easy to overcome but it
can be done.
The key is to start with an amount of money that
is not going to bother you to lose. As long as you
follow that strategy and always stay at a level
that keeps you detached from the money than you
will greatly increase your odds of success. Slowly
increase the money and grow your tolerance at a
slow pace.
Don’t get ahead of yourself or you will likely
find yourself in a difficult and undesirable
position.
