There are two fundamental elements that are involved in profiting from forex trading – a good trading model and emotional control.
For the person beginning in trading, the need for emotional control is vastly underestimated and the reason for this is due to the nature of emotions. Emotions are instinctive reactions to a specific situation, they are subconscious and therefore irrational.
When a person reacts emotionally, they feel that their reaction is absolutely correct and beyond question. The sad reality is that many people lose a lot of money because their emotions are not under control during trading.
How To Beat Your Emotions in Forex Trading?
Forex trading has the awful habit of stirring up feelings that you never knew existed, particularly in the male mind and this section shall go through the variety of emotions that can be felt and analyze them with the intention that the Forex trader can learn to remove them while trading.
Aggression in Forex Trading
Aggression is hostile or violent behavior and it is a common male attribute. This is rarely mentioned in trading circles, instead revenge is most commonly spoken about.
However there are two fundamental differences between revenge and aggression. First, revenge is rooted in pride and although there is an element of pride in aggression, it is more deeply ingrained and natural to the male psyche. Second, revenge is all about punishing somebody for an injury, whereas the focus of aggression is more about survival through violent means.
For example, consider a footballer who loses the ball during a game, he naturally becomes aggressive, but does not tend to want revenge. Rather he wants to get the ball back, induced by an instinctive need to survive (i.e win the game) and rarely is he trying to punish the other player.
In the same way, when the graph goes against a speculator, his instinctive reaction is to survive. He perceives that he is losing money, he is being irresponsible and should respond in a more assertive manner so as to regain control and survive. This can lead to two conclusions; first the trader gets out of a trade too early. Second, he starts to make erratic trades with the intention of recouping the money that has been lost previously. Both of these urges need to be controlled. Aggression should be channeled into one direction, following a profitable trading model.
Anxiety in Forex Trading
Anxiety is the feeling of worry, nervousness or unease and the trader has plenty of reason to feel this, having placed his own money on the line.
Anxiety is inevitable in such contexts and the aim of the speculator is to have it under control. It can lead a person to enter a trade too slowly and rush out too quickly.
Consequently, it is important that we minimize this feeling using two tools: First, risk management means that the majority of a person’s money is protected leading to a feeling that they can afford to lose this trade. Second, having a sound method in trading leads to an assurance that a person may lose this trade, but they generally will earn pips.
Boredom in Forex Trading
Boredom is impatience based upon the lack of things to do.
This is a frustrating irony about currency trading: the person who will prosper in this endeavor needs to be intelligent, but that means that they have a vibrant mind that needs to be active and involved.
Many times a graph might end up stationary for an unpredictable amount of time, hours, even days and boredom sets in, leading to a desire to take risks to liven things up a bit. Also people can end up seeing things in the graph that aren’t there. They fail to re-analyze the graphs at regular intervals. Somehow, the speculator needs to occupy his mind with other things while watching the graph. Another possibility is that the trader has entered a trade due to the presence of all the right signals, but then the graph either doesn’t move, or moves against him.
This leads to a delay in the right outcome and the speculator then has to wait until the correct result comes to fruition. After having set up all the necessary pieces of information, he needs to prepare to buy/sell if certain movements take place and while waiting, he needs to find something else to occupy his mind while watching the graph.
Caution in Forex Trading
Caution is taking care to avoid danger or mistakes and one would think that this is a good quality to adopt and in many ways it is. It is good to be aware that you can lose your money and so make tentative steps when trading – However there is a caution that can lead to loss.
Suppose you have an entry point to start trading and when that point arrives you say to yourself, ‘I’ll just wait a minute to see what happens.’
The graph continues going in the right direction and so you then end up rushing in and your stop loss and limits orders are now all wrong because you were too cautious. An entry point is there for good reason… you are supposed to enter at that point! To not enter at that point is to challenge the model and that will probably lead to failure.
Excitement in Forex Trading
Excitement is the feeling of enthusiasm, eagerness and when that graph shoots in your favor and you see your trading account rocket in value, the initial tension becomes released and elation takes over. This can be your enemy and destroy you because mixed with that excitement can be a sense that you cannot do anything wrong.
Why is it that some traders have made millions trading and then lost it all? – The answer surely must be that they got a sense that they were now in “the zone” and nothing could destroy them. Excitement can lead to a person abandoning their method and adopting the simple belief that however they trade, things will come good for them. Excitement should be focused upon the act of following a profitable trading strategy.
Fear in Forex Trading
Fear is a feeling of anxiety stimulated by the threat of danger and danger lies on every corner of Forex trading!
If the graph is going against a person, they may fear losing their money in the trade, or even losing all their money and blowing up the Forex account.
Fear is an enemy in trading and is common in beginners due to the lack of experience in the graphs in real time. It is very easy to trawl through historical graphs and create models, but when those candles are moving against you in real time, possibly ten pips in a split second, fear becomes very real.
The cure for fear is first to have a good trading strategy and stick to it. There should be no fear when one is following something that they know will work over a period of time. Second, trading models are based on statistics and that means that you will lose some trades, even many trades. As a result, one needs to take risk management seriously. A trader feels a lot less fear if he knows that he can afford to lose this time.
Greed in Forex Trading
Greed is the intense desire for wealth. Especially when looking at historical graphs and noticing large movements, a person is tempted to say to themselves that they could have earn a lot of money if they had traded it.
Visions of a big house, speed boat and expensive holidays begin to dominate the mind and reckless Forex trading becomes the main dish for the day. Thoughts that the next trade will be the big one lead to an abandoning of risk management, all the money goes on one trade to reap the maximum effect. Perhaps a line starts moving quickly, leading to the conclusion that it must continue forever, the speculator rushes in to profit from it, only to find that the 100 pip dive has gone back on itself and he has lost all his money.
Greed has absolutely no part in Forex trading, pips should be seen as pips and not as money, it is not good to look at your trading balance when trading. I personally avoid almost all connection between money and trading while undertaking speculation in the market.
Hope in Forex Trading
Hope is a feeling of expectation and desire and these are your enemy.
Expectation is the strong belief that something will happen, but rarely can one predict which way the graph will go. Sometimes the trader will look at a graph and will say to themselves that the graph has to go in a certain direction simply based upon a gut reaction. Consequently, he abandons his model and loses the trade. It is even worse if his gut reaction is proved correct, because then his gut reaction becomes his model… and he will lose all his money.
Hope can also be instigated by desperation. Perhaps someone borrows money to speculate, or has a debt and needs to pay it off. They put the money in a trade desperately hoping that money will come from it. The only reason to ever put money on a trade is that the graph is following a model that is known to work. One should be very careful that there are no underlying senses of need to earn money stimulated by circumstances in life when approaching trading for any reason because need leads to Forex gambling based upon hope. One should only feel the expectation of a positive outcome when following a good trading model.
Impatience in Forex Trading
Impatience is the inability to tolerate delay and this can be different to boredom. Boredom comes after a long period of waiting, but impatience can come from only a short period of waiting.
In a trader’s model, there tends to be two critical aspects at the beginning; the technical indicators that suggest that you should think about trading and the actual entry point. Impatience can take place if the indicators are starting to come together, but as of yet do not actually provide an entry point. This can lead to a rush into a trade too early, leading to loss.
Another aspect of impatience can come in exiting a trade. Sometimes the correct trading signals have not come into place to exit and the trader leaves too early because they do not want to wait.
Pride in Forex Trading
Pride is an excessively high opinion of oneself and is a great evil that leads to many problems.
Some people when they enter trading have visions of driving a BMW, wearing a pin stripe suit and generally having an air of greatness about them. There can be an assumption that simply doing trading will lead to earning money and greatness, that the graph will do as it is supposed to. Pride leads to self-elevation above one’s true position.
The worst aspect is that the proud person assumes that they are lord over the graphs. The result is a rejection of risk management and a general confidence that the graph will do they want it to. When it doesn’t, anger ensues followed by revenge. The reality is that the speculator is a servant and the graph, the master, can crush him with one blow. It is important to be able to learn from mistakes and admit that you were wrong.
Regret in Forex Trading
Regret is the feeling of repentance or sorrow and the trader experiences this for two reasons – First when the trade goes against them. The result is that the speculator feels that he has made a mistake and next time that mistake won’t happen. This leads speculators to change their strategy to accommodate for the previous failure.
The second reason for feeling regret is the perception that you have got out of a trade too early. Sometimes the graph can move 200 pips in a session. Consequently if someone exits the trade at say 30 pips, this leads them later to feel regret that they didn’t get the full 200 pips. The result is that the trader says to himself that next time they are going to go the full way.
Regret is an enemy because it causes people to challenge their model. A model is not based upon one trade, rather it is a statistical paradigm based upon the general outcome of many, many trades. Consequently, if you have a good model and occasionally it fails, one should not feel regret.
Many people treat trading like an exam, if they do not get the maximum number of pips out of a movement in the graph, then they have somehow failed. This is not good logic. The aim of a trader is to earn pips, not get the maximum number of pips and as a result they should be happy with following a winning Forex trading plan that works. The only regret that a trader should feel is regret at not following a profitable trading plan.
Revenge in Forex Trading
Revenge is the retaliation for injury or wrong, it’s root is pride.
There is nothing worse than at the moment that you put your money into a trade, the graph goes in completely the opposite direction! – It makes a person feel that the market has somehow betrayed them and it must be punished.
And how should the market be punished? – Obviously by putting money into the said market and showing it who’s boss! – This will obviously lead to disaster because revenge tends to lead a person to break their trading model and normally with tragic consequences.
Urgency in Forex Trading
Urgency is the feeling that something requires immediate action and it is common that as soon as a person has learnt the basics of Forex trading, there can be a very strong sense that one should immediately enter into buying and selling.
This urgency is partly created by the exciting prospect of earning money in Forex trading. The reality is that Forex trading is very difficult and one should resist the desire to start trading too quickly.
Don’t Let Your Emotions Dictate Your Forex Trading
Emotions are not good in trading.
It is important to try and keep them under check when about to enter the Forex market. The most important point is that speculators should have a trading strategy that works and they should follow it to the letter. There should never be an abandoning of risk management stimulated by the variety of feelings that attack a person during the actual trading event.
Having placed a rather negative picture of emotions, the fact is that we are all emotional beings and as a result, we need to ask, what state should our emotions be in when trading? – The answer is that there should be a general feeling of well-being.
The person who generally feels well lacks any particular underlying bias to react irrationally during a trade. It is not good for a depressed person to trade because they will speculate at inappropriate moments and will get more depressed. If a person is loaded with debts and is feeling stressed, he will rush into trades and lose more. A person who has the general feeling of well-being will only suffer from emotions that are common to all people like regret, impatience, fear, excitement etc.
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