The role of emotions when trading Forex.
Forex trading requires a certain level of knowledge and experience when engaging with the markets. Becoming successful and profitable is definitely not an easy task, but success is not measured by things that are simple, instead, is measured by how much effort and discipline is invested towards achieving a certain objective. Every individual backed with the proper mindset and goals could start trading and eventually get consistent profits.
To succeed in this hasty industry, every trader must prioritise the setting up of a strategy before entering a trade, it helps as a guide to follow in order to reach a certain goal. But apart from having a good strategy, all traders need to learn how to control their emotions and understand how by not doing so, they could harm their possibility of earning profits. Consistency and patience are key to succeed in Forex trading but having self-awareness will provide the trader with the advantage he or she will need to undertake a successful journey.
The purpose of this article is to help traders understand both negative and positive emotions when trading Forex. By knowing how to react accordingly and how to keep their emotions balanced, every trader moves a step further in the ladder to successful and profitable trading.
Emotions that could harm trades.
After entering a trade and placing certain amount of money in the market, most inexperienced traders can get too emotional, which could be a determining factor on whether the trade will be profitable or not. When witnessing losses accumulate, most traders tend to get frustrated and in some cases panic, that’s why controlling such emotions becomes a top priority for every trader aiming for success.
Allowing human nature to affect the decision-making process of each trade, is one of the first biggest mistakes every new and veteran trader will experience. Not wanting to recognise mistakes elevates the ego and affects negatively the setting-up of a new strategy, it’s important to know what went wrong and what went right in order to create the refined strategy that will provide consistent profits.
At OspreyFX we support responsible trading by providing traders with tools to help them identify what’s working for them and what’s not. Understanding the factors that could harm a trade comes as one of every traders first responsibility before funding a trading wallet.
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Feeling frustration is a common emotion everyone experiences at some point. Most traders will probably take it out on themselves, but some of them may put the blame on the trading platform they’re using. It’s important for all traders to own their mistakes since that’s the only way to learn from them.
A streak of losing trades and a large draw-down that wasn’t expected can easily sink a trader into depression as well. The important part is to forget about those losing trades and stop adding to them. Our Advise would be to step back from trading, set up a new strategy, test it to see if it works and start over.
Even though frustration and depression can seriously harm trades, one of the most important emotions traders need to learn how to control is greed. A trader gets greedy when a trade is going well and the chart shows a clear exit opportunity to lock the profit, but the trader decides to keep going and eventually ends up losing money. Apart from avoiding being greedy, it’s ideal that all traders know their entry and exit points to ensure profits.
Get the right mindset.
Trading is already a hard-enough field to master without all the extra issues that can come from negative emotions. Whilst trying to keep these in check, it is also essential to bring positive emotions to the equation and adjust the mentality towards a winning and positive one, this will eventually build the consistency and attitude every trader must have before engaging with the markets.
It’s important to look at the glass that’s half full and not half empty. As mentioned before, traders need to believe in themselves, this is important to understand not only for trading but also for life. A positive attitude will lead to positive outcomes.
It is also a well-known motto that good things come to those who wait. This is especially true in Forex trading, by learning that success doesn’t come overnight, traders start structuring the consistent mindset that only successful traders acquire. To build patience, it is essential to be relaxed and take deep breaths and remember that no one is born being patient, it’s an acquired virtue.
As explained before, consistency and patience are key for successful Forex trading, but it doesn’t necessarily mean those are the only emotions every trader needs to attach to their mindset and strategy. Good results also come to those who are inspired and passionate enough when aiming to achieve a certain goal, these two are the emotions that help traders move forward. The uncertainty in the forex market will always be a part of the job, but by being inspired and passionate, every trader understands that it doesn’t matter how good the strategy is, the market can always go against the predictions. An inspired and passionate trader will always hope for the best but prepare for the worst because he or she knows that losses happen but are no reason to quit.
As mentioned at the very beginning of this article, successful Forex trading requires a certain level of knowledge and experience. But 90% of Forex traders that quit don’t do it because they couldn’t learn or practice, they quit because they didn’t know how to control their emotions when trading. Some get greedy and some get frustrated because they are constantly losing money, but what about that 10% that actually makes a living out of Forex? Those are the few that learned how to get the right mindset before entering a trade, the ones that understand that no strategy is flawless and the ones that see mistakes as an opportunity for improvement.