Excessive emotionality is not the best trait of a trader’s character. Emotions are some of the worst enemies to Forex traders. They often interfere with perfect timing by making traders close profitable trades prematurely and forcing them to wait till small losers become big ones. All in all, they increase the likelihood of making costly mistakes in daily trading.
Emotions are disturbing in focusing on the trading process and evaluating the market situation efficiently. That is why all Forex experts out there share the same standpoint on the matter. They recommend learning to suppress emotions. However, this is a very difficult task. How to do that? Where to start? What factors to pay attention in the first place?
Let Richard Perry answer these questions. He is a well-known FX expert for Hantec Markets.
Reasons and Consequences of Emotional Forex Trading
It is not a secret that Forex trading is subject to substantial risks. On the one hand, you strive hard to make as much money as you possible can. And you seem to have everything required for that – enough money, knowledge and skills etc. On the other hand, nobody can guarantee that you are going to stick to the plan at all times. Trading is risk, and that is the major reason why traders get nervous from time to time. We are human beings, not robots. Therefore, we cannot get rid of emotions completely unless you don’t care about you trading capital, which is a bad position to take since in this case you are not motivated to trade in order to make more money.
With that said, it is useless trying to turn completely cold-blooded. Instead, you should learn to control your emotions or at least to avoid letting them take control over you.
According to Richard Perry, losing trades are not the only things that can make the trader emotional. Big wins can also make the trader overexcited and careless. Just image:
This is your lucky day (week, month). Your trading results are much better than expected. You feel overexcited and at some point it seems to you that you can total destroy the market with your unbeatable trading strategy or your trading skills. As a result, you turn reckless and eventually start trading big against all the reasonable risk management rules and eventually losing big if not all of your equity. This type of things happens to many rookies and even advanced traders. However, this is not what a professional trader should do during up-streaks.
However, down-streaks can let the trader down as well. Apparently bad decisions lead to poor results in the long run. According to Hantec Markets, during times of bad luck in FX trading, it is very important to stop and look around to see what causes those multiple losers and reconsider the trading tactics if necessary. However, instead of being smart enough to analyze another down-streak, most trader do fall prey to emotions. Mr. Perry says that more often than not, inexperienced traders feel angry and want revenge. Therefore, they start striving hard to recover all those losses at all cost, only to find themselves losing even more most of the time. Emotional trading can never lead you to long-term success in Forex trading. That’s for sure! That is one of the key reasons why most trades out there are habitual losers.
There is another kind of emotions hindering trader’s results. To make it clear, lets imaging that a trader has closed a very profitable trade or the monthly profits are exceptionally big. At this point, the trader may feel very proud of this achievement. However, at the same time, at the back of his mind he may be afraid that he is not going to repeat this success anymore. This may lead to the fear of losing money or underperforming, which may further translate into a state when the trader stops trading at all or reduces his trading activities to the minimum. At the same time, it is clear that you will never make money trading Forex if you do not trade. Anyway, one of the best tips to reduce the influence of emotions is to have a decent plan and stick to it at all times regardless of the current market situation.
Overcoming Emotions
Richard Perry recommends checking your degree of emotionality. Actually, this is not that difficult to do. Next time, when you are under pressure due to volatility spikes or other stressful market events, try to look at your behavior. Alternatively, you can register a live account and a demo one and trade simultaneously on both of them. If the results differ a lot, chances are you are afraid of losing money. This is the drawback you should fight and get rid of in the first place.
As for overcoming excessive emotionality, it is always a good idea to start a trader’s diary. It will help you to find out the reasons why your trading results leave much to be desired, including profitable and unprofitable techniques within the scope of your trading strategy.
Improving the efficiency of your trading and getting rid of emotions is no a matter of days. So you have to be diligent, patient and consistent in what you do. This will lead you to long-term success.
