Emotions in Forex
When it comes to forex trading, emotions have a big role to play! This is why it takes much more than smartness and intelligence to become a profitable trader in this field. Everyone can learn technical analysis, risk management, trend lines, trend channels, support and resistance and every other term involved in trading with some time and lots of hard work. But where emotions are concerned in trading, there has to be a lot of control and the ability to robotize your training as much as you can.
One of the main problems with this business is the loneliness that comes with it because not a lot of people are doing it. You most likely have no one in your family or circle of friends to talk to about trading and even if you decide to share anyway, they may not understand you. This is why it is very important to have a mentor in the field or a community of people that can understand and always listen to you. Having people around will help you understand how to better handle losses.
If you don’t have an understanding of how to lose, then forex trading is not for you because losses and wins are normal occurrences in forex trading but you have to learn to deal with them. Your live trades should be taken the same way you take your backtests- with no emotions. There shouldn’t be any difference between your trading sessions and your demo sessions. But this is actually easier said than done because emotions will always try to get in the way.
Like we have said before, anyone can learn strategies fast but learning to control your emotions takes time and a lot of patience from constantly trading and practicing. Take, for example, you read 10 books about bicycles and how to ride them, the first time you get on a bicycle you won’t just know how to ride it immediately. You have knowledge of the theoretical part but the practical part requires time and experience for you to gain mastery of it. This is the same for forex trading.
There is a lot of psychology involved in forex trading and you have to work on that aspect because issues will surely arise when you switch from a demo account to a real account. Even when you make mistakes, don’t feel discouraged because it’s very normal, we are all humans after all. All you have to do is make adjustments and take not of the mistakes made for future purposes.
One key to success is breaking down every emotion that you feel and adding it to your journal when you enter any trade. Make sure you read your journal once a week to learn more about what is holding you back so you can work on it. A checklist and a trading plan can fix many of the issues you will have with psychology. Your checklist and your trading plan should be followed to the core at any cost so that your emotional control will be very good and those problems can be dealt with.
Every trader goes through the phase of learning to control their emotions by sticking to a solid plan. The fear of losing a profit or making a huge profit should never be your drive as you trade otherwise, you will never be profitable. Make sure to focus on what you are doing and work on all the psychology involved to ensure that your trading skills improve.
Types of emotions in Forex
Many traders experience fear in two ways when it comes to trading. The fear of loss and fear of profit is real in trading. A lot of traders are afraid to open their position on a meta trader when trading on their real account probably because they didn’t take trading on the demo account seriously. Fear can also come into the picture if you immediately start trading on a real account without trading on a demo account. You must be able to differentiate between trading on a real account and trading on your demo account.
A lot of traders are afraid of profit, they close their trades before time, fearing that they will lose their already “earned” money, that is one of the reasons why most traders are not successful. To avoid ruin and failing in this field you have to respect your risk management and never allow your emotions to play with you. The moment you realize that losing in forex is a normal occurrence and that you have to accept it as long as you respect the rules of your trade plan, your trades will be profitable in the long term. That is why trading a robotic strategy that keeps the use of emotions to the barest minimum is very important.
Greed is a natural flaw in man and allowing it to take over during your trading session can have a very bad effect. Greed makes you do the opposite of closing your trade prematurely. You have to strike a balance and know when it’s time for you to close your trade. Some traders do not know where and when to stop because the profit is never enough for them. These types of traders don’t respect the laws of risk management so they never close the position at the right moment. Not taking profits on time is just as bad as taking profits prematurely.
Greed can lead many traders to risk more than what they have in their trade plan just so they can make more money as quickly as possible. But if you want to be truly profitable in forex trading, you have to focus on your trade plan, risk management and other things. If you want to get into this business and make huge profits overnight, then forex trading might not be for you.
Trading is a stressful activity and every time traders open the meta trader it might lead to nervousness. This is a terrible thing because it will take a toll on you’d health and your psyche and your trading in the long run. It will cause you to make a mistake and automatically close the trade if the price for example goes back from $10,000 to $5000. This can affect your focus and productivity throughout the day. What you have to do is check whether it’s necessary to manage the trade, rather than waste time thinking about the trade or trying to observe it.
Excitement and anxiety
Excitement might not necessarily be a bad thing but it can affect your trading. Anxiety has more effect on your health, psyche, and your trade. This emotion is present in a lot of traders who are trading for the first time on a real account. It’s okay to be excited a little, but once anxiousness and excitement mix, they will affect your judgment and cause you to miss out on opportunities.
The presence of huge numbers on the meta trader can upset new traders and cause them to close their positions. As time goes on, these emotions will be resolved and you’ll learn not to look at trading through money but through percentages. In trading, money is a reward for a job well done.
Hope is an emotion that is very similar to greed and it occurs when people forget their rules at one point and hope that any trade can bring them profit, by doing so they break their rules and destroy everything they have worked on. Everything in forex is a probability but trades must be taken according to your trade plan.
Probability in forex will only be profitable if you trade what you have already traded during backtesting. This is one of the ways you can make sure the strategy is profitable. Hope is not necessary where there’s a drawn-out trade plan because you can already predict the outcome. There are no fingers crossed in trading, there are only results based on preplanned action.
There is a period when the forex trading market is corrective and during that time moment we should be patient and carefully wait for an opportunity to trade. Discipline and focus are the two things that keep you afloat in this business even when things are slow.
A lot of traders find it difficult to stay without trading for a period so they start opening positions that are not in line with their trade plan. This can lead to loss of capital, loss of account, and all the other losses you can think of. To prevent this from happening, you have to learn patience because it is truly a virtue in forex trading and every trader should have it.