The dangers of emotional trading are caused by fear
2 min read
Trading is less a business and more psychology from which your success or vice versa on Forex market depends. Even if you have decided to switch to systematic trading, this does not diminish completely the dangers of emotional trading and emotional pressure when you are deciding a trade.
Often, Forex traders have the belief that only a complete absence of emotions can help during trading. Still, fear, uncertainty, greed, hope, faith, regret, and happiness inevitably follow the process of trade and may cause the dangers of emotional trading.
Combating emotions at the moment when your feelings overwhelm, means ignoring the sixth sense, intuition, and finally insight. And what happens? You have brain fog!
Why? It is known that emotions also transmit the flow of information to us. We are guided by this information, we behave under their influence. But this is given to us to control our emotions and to replace one’s feelings with others.
There are many ways to control emotions and avoid the dangers of emotional trading:
First, it is possible to change your emotions by concentrating on another object. As a rule, this method is very effective. The thing that attracts our attention becomes real for us. You can consider the suffering of losses, or vice versa, examine the possibility of making a profit.
Second, by changing your views and beliefs you can change your emotions. Every belief we gain over our lives is, in a way, a filter for us, which is affecting the knowledge of all information. All points of view accumulated throughout life have an impact on the interpretations we receive in our mind.
Finally, the third way to change your emotions is by modifying physiology. Change in breathing, mimics, body position, color and speed of our voice, all this has a direct impact on the emotional part of not only Forex traders, but any person.
Concentrate attention to avoid the dangers of emotional trading
The concentration of attention is one of the most important components of our emotional state. The fact that you are focused on the Forex trading process becomes not only the subject of reality but also the acceptance of the facts. All activities influence the interpretation of events and therefore affect our emotions. All this guides our behavior, and decisions get an emotional connotation. In this case, it is necessary to define the priorities: what are you waiting for? Do you think about the possibility of losing? Or expect a profit?
Those who see only losses are likely to hesitate to invest in the market for too long and may even miss the transaction. But once they decide to enter the market, they quickly earn profits. Trading is an attempt to balance the contradictions. The trader should focus on profit and loss and try to balance them. The trader should focus on the likelihood of his/her methods and information provided by the market because they are the only ones that are correct and reliable.
Physiology and the dangers of emotional trading
It has been proven that our body manages our emotions and that emotions influence our thoughts. The easiest and most effective way to change your emotional state is to change your physiology – speed, and depth of breathing, voice or even your pose.
Pay attention to your attitude, how you sit, breathe, and whether the muscles of your face, shoulder, or whole-body tense. If you feel sick, you should sit more comfortable. Fully simple physiological manipulation can be an effective way of controlling your feelings.
Control your emotions, this will definitely make you a more successful trader!
Understanding Fear
When a trader gets bad news about a certain stock or the general market, it’s normal for the trader to get apprehensive. But at the same time, you must be clever, you must avoid the dangers of emotional trading.
You need to understand what fear is: a natural reaction to what they perceive as a threat. In the case of traders, to their profit or money-making potential. Quantifying the fear might help. But you as a trader should consider pondering what you are afraid of, and why you are afraid of it.
Yeah, I know! This is not easy, and you need practice, but it’s necessary for the health of an investor’s portfolio.
Greed Is Worst Enemy
“Pigs get slaughtered.” is an old saying on Wall Street.
This means that greedy investors are hanging on to winning positions too long, trying to get every last tick. Greed can be devastating to returns. A trader with greed always runs the risk of getting whipsawed or blown out of a position.
Greed is often based on an instinct to try to do better, to try to get just a little more.
The first instruction is: A trader should develop a trading plan based upon rational business decisions, not emotional caprice or potentially dangerous instincts. A good trader should have trading rules and plans.
Why are trading rules and plans so important?
Before traders feel the emotional or psychological crunch, they need to create trading rules. That will keep your heads in the right place. You should lay out guidelines based on your risk-reward tolerance for when you will enter a trade and exit it, whether through a profit target or stop loss. The emotion is not part of the equation. It would be also wise to consider setting limits on the amount you are willing to win or lose in a day. If the profit target is hit, you can take the money and run. But if losing trades hit a predetermined limit, you can roll your tent and go home, preventing further losses.
Every single trader should be able to read a balance sheet or a chart. But there is a psychological component to trading that shouldn’t be overlooked. You have to know how fear and greed can impact trading. That’s why you should exercise discipline, and develop trading rules and plans. Never forget that part of trading.
If you have any experience with this, let us know. Share it all.
Risk Disclosure (read carefully!)
