Sunday, December 3, 2017

Fear and Greed - A Forex Trader's Two Worst Enemies

Whenever I hear or read about how 95% of Forex traders lose money on the market two words spring to mind: Fear and Greed. I consider these two, all too human, emotions to be the worse enemies of any Forex trader, capable of wreaking havoc in any account, no matter what size, and cause tremendous losses which may require months to recover from, if at all.

Why do fear and greed play such a big role in the trading psychology of Forex traders? The reason is Money. After all, this is why anyone gets into trading the currency market in the first place, the desire to make more money with as little work possible. This is Greed, because you wish to make more and more over and over again.

The problem is that there is also an inherent risk in trading currencies. The risk of losing money exists every time you enter into a trade. It can go your way or it can go in the opposite way. Losing money is something that no one wants or likes. In fact, it can be downright scary as money buys us things, keeps a roof over our head, and contributes to our sense of safety. This is where Fear comes in, the fear of losing money.

That these emotions exist is not a problem in itself. The problem is that they are capable of playing with a trader's decision making process by eliminating logic and common sense and creating an atmosphere for irrational trading decisions, the kind that can only cause damage in the long run.

Here are two examples of how these emotions interfere with your decision making:

1. Let's say you're into a trade and it turns sour. You set a Stop Loss as you should have done but now you're having second thoughts. You don't want to admit this trade may close in a loss because you're Greedy. You want this trade to make you money. You act irrationally and change move your Stop Loss, giving the trade more room to go against you. Finally, you end up closing the trade at an even bigger loss than you should have suffered. Why? Greed.

2. On the other hand, let's say you have a trade and it is going in your favor. It is now in a small profit. You've already set a higher target profit so you need to leave this trade to run further. However, now Fear grips you and you begin fearing that unless you take this profit while it's still there, you will end up losing it. This causes you to close this trade at a small profit and you end up missing out on a bigger profit as the trade could have earned more for you.

To be a successful trader you have to learn to control your emotions. Until you do that, you will never earn any kind of money in the long run and join the 5% of winning traders.

To eliminate Fear and Greed from your trading visit Forex Mental Tips and Tricks