We can’t ignore the fact that emotions affect our daily lives activities from going to work and when taking a cab home. Emotions define how we react towards specific people or objects, and thus they play a significant role in your lives.
You need to come up with a way to control your emotions when trading to reap big from the Forex industry. Some the feelings that can affect you when trading include fear, greed, hope, anxiety, boredom, and frustration. Here I’ll explain the pitfalls of emotional trading.
Fear is the most discussed feeling when people talk of emotional trading and followed by greed (I’ll explain this next on the list). Fear is something that’s come naturally, and there is no way you can say that you won’t feel it.
Fear can show itself in many ways and its known as the primary cause of almost all trading mistakes. There is fear of losing all your equity (total money), and this can make you delay to stop or close a position since you have not come into a realization of losing some part or even all of your money.
Another way fear can manifest itself is through closing winning trades once you notice some profits (actually, some people use this technique and reap big), and this can make you not get the maximum profit in that trade position. You’re afraid of giving back your earnings no matter how small they are because you don’t want to take risks.
By putting your greed first when trading, you’re slowly digging your grave (downfall). Why is that? If you become so greedy, you’ll find that you are not adhering to the rules and principles of the game and you may end up losing all your money. Greed actually shows itself when you want to make lots of profits with a small amount of equity in your trading account. You’ll make impulsive decisions without taking into note the set rules and with no gambling mindset. You should at least have a rest day or famously referred to as “no trading days.”
Fear, greed, and hope, they all come hand in hand. Especially if you’re losing a position and instead of closing it, you leave it open for a while with the hopes that the position will revert. You should trade according to the current news and trends and not how you wish the market to go in a direction that favors you.
Don’t be too excited when you notice a position you have just opened is making profits, and you need to ask yourself why you’re in that trade. And if indeed you broke your set rules, then you should not be in that trade in the first place. Control your arousal level to avoid losing all your equity in the long run.
Don’t trade because you’re bored since your mind will not be set to give any management decisions. You’ll not have the much-needed focus in Forex trading.
Never violate your set rules in trading because one of your positions is not going according to the direction you analyzed. That is anger and needs to be controlled when entering or leaving a trade.
Trading is like any other business out there that without a doubt can be hugely affected by the emotions you express when trading. Feelings are a significant influencer in trading, and they determine how well you as the trader can be profitable over time.