If I told you that you are driving nails into your own forex trading account’s coffin, how would you react? Well, I am not exaggerating when I make this statement and you will totally agree with my viewpoint by the time you finish reading this post today.
In case you are still puzzled and have not yet understood what the heck I am talking about, then let me give you a quick update on the names of those nails so that you know I am not kidding you.
These nails in your forex trading coffin are nothing but common emotions that you frequently deal with in life and more importantly during trading. You know them by their names-avarice, panic, optimism, and remorse!
This emotion may have different names, but none of them says anything positive about it. Greed or avarice is one emotion that never benefits anyone and especially so when it raises its ugly head during forex trading.
It is greed that makes you expect bounties where there are none and in the process makes you risk more of your money in expectation of gaining a windfall.
Trying to risk more than you can truly afford to lose is like throwing yourself into the blazing fire and expecting to come out unharmed. No matter how huge the open profits seem to you, do not pursue your greedy desires because when you risk more than you can afford to lose, you are essentially inviting disaster.
This is a fairly common emotion that sweeps many of the forex traders off their senses and they indulge in it without even realizing anything. It is greed that makes you set your profit levels further away than your original levels because you are expecting to accumulate more.
Stay away from this mentality or you would be running forever behind a mirage.
This is an emotion that attacks you suddenly and most of the time you are paralyzed and do not know how to respond. Unlike greed, fear or panic is an emotion that may have certain advantages. For example, if you did not know fear then you may have indulged in umpteen daredevil acts and risked your life in the process.
Panic was actually designed as a safety mechanism to keep you protected in dangerous situations. But during forex trading, this emotion almost has no positive role to play.
It usually attacks in the form of a memory of an unfavorable experience during trading, like for instance a previous loss or maybe news of someone else losing a lot of money due to the sudden volatility of the market.
If this fear is within bounds and actually serves to keep you from risking too much of your dollar amount then it is okay to experience it once in a while. But it is commonly seen to paralyze traders from engaging in any further trades and that is a huge loss.
If you bear in mind two important points about forex trading, then it would be much more easier to overcome this paralyzing emotion.
First of all understand that no two markets are the same and just because you/ somebody else lost some money in a previous market atmosphere does not in any way mean that history will repeat itself.
The second and perhaps the most important point to note is that you ought to set a dollar amount that you can lose comfortably without letting the loss affect you or your life in any way. Once this dollar amount is set, you cannot absolutely budge even an inch during trading, no matter how huge a windfall you are expecting to make in the current scenario.
Volatility is the basic nature of the forex markets and there is nothing you or I can do about bringing it under control. But you definitely can exercise more control over yourself and your emotions so that they do not wreak havoc on your life or your forex trading.
Use news or market predictions as mere indicators of what might happen. Do not attach exceeding importance to them in a manner that they trigger a paralyzing fear response within you. News or predictions can do nothing at all and all the action is within the price action trade setup.
If your price action signals indicate a favorable or unfavorable trend pay attention and act accordingly during your trade, but otherwise, following the news and unnecessarily whipping yourself up in anticipation of disaster is basically useless and meaningless. You will only lose your peace of mind and maybe some profitable opportunities if you do so.
Use your fear to stay safe from over risking a higher dollar amount and indulging in over trading. Never allow it to overcome and paralyze your mind and actions and trade.
I am probably bound to raise a few eyebrows when I say that optimism is going to kill your forex trading career. Well, optimism and hope do work wonders when you are going through tough times in life, but they are like a double edged sword.
It gets quite easy to lose yourself in building false hopes and forcefully creating optimism where it is not there. While you are trading forex, if you jump in with an optimistic attitude that you are going to win every trade no matter what, then my friend I need to warn you. You are soon going to face trouble. And when I say trouble, I mean loads of it.
If optimism for you means making away with stop losses or setting high values here in the expectation that the markets will turn in your favor and Lady Luck will smile benevolently upon you, then that is what I call it recipe for trouble. Don’t do that!
No trader is guaranteed to win every trade that he/ she indulges in. Forex trading is like any other business and certainly has its share of ups and downs. Instead of blindly hoping for 100 % wins, it is more sensible to hope for making more wins than losses. And that too needs to be supported by effective training or knowledge. Simply wishing that each of your upcoming trade will be favorable to you and bring in loads of profit, without any effective strategy to back it up is pure foolishness and forex trader cannot afford to be foolish. I hope you get my point here.
Really, this particular emotion has no benefit of any kind in forex trading. On the contrary, I think it would be safe to say that this is perhaps the most destructive emotion because it not only affects your present but also affects your future trades.
When you start indulging in remorse or regret, what you are doing is essentially wasting precious time in crying over spilt milk. What benefit will it bring to you in wasting time over what could have been achieved or how much profits you could have made.
Moreover the markets are continuously changing and evolving. What could have been achieved in the past scenario is not going to repeat again because the market keeps evolving and the chances of the same scenario developing again are remote.
Remorse also leads to yet another disaster and that is trade chasing. Trying to enter a trade when the setup has already triggered is not a wise decision to make because there is a higher risk of loss and then it leads to a never ending cycle of remorse over losses incurred, followed by more of trade chasing.
Trade chasing is another form of gambling your money away and a professional forex trader would not indulge in such foolish things.
The only aim of studying your past trades must be to analyze what worked or what went wrong in those trades, so that you can use that information to improve your upcoming trades. Besides that, any other activity is a total waste of time.
I am sure you now realize how you have been guilty of driving at least one of these 4 nails into your forex trading, but don’t worry I have some tips for you to overcome them as well.
Conquering These Four Disasters
Now that you have recognized these 4 disasters, you definitely want to know how to conquering them and stop them before they bring your forex trading career down to its grave. As the popular adage goes, knowing your enemy is battle half won. So the good news is that you already have half your battle against these 4 disasters.
The only thing remaining to do is to be self-aware and catch yourself indulging in these emotions during trading. And when you do that be strict against yourself and instantaneously stop.
You have to follow these actions up with adequate training and learning. Remember that an effective winning strategy needs a combination of offensive and defensive tactics and your defensive tactics constitute the first step of recognizing the destructive emotions and catching yourself indulging in them. Your offensive involves empowering yourself with expert knowledge.