One of the reasons only a small percentage of traders can consistently profit from the Forex Exchange market is because they know how to be rational despite the nerve-wracking movement of prices. Good traders do not rush on decisions in Forex trading and prevent their emotions from taking over their decisions. Fear, greed, anxiety, hope and all these empty emotions will leave you nowhere if you let these influence how you trade. To see how rational trading improves your trading ability, there is a need to explore the effect of emotions on your ability to trade, how to spot them, and what you can do to avoid them.
When it comes to trading, it’s often that you feel afraid since you can lose your hard-earned money at any time. It’s a natural part of the process so all traders normally feel the same. A little amount of fear is actually healthy as it helps control the amount of risky decisions you make. Although being bold helps once in a while, it can also hurt you a lot if things go wrong. If you let the fear cripple you, however, you won’t be able to maximize your profits as it urges you to get out of a position as soon as possible.
Every bit of bad news will easily get into your head, and you may miss out on golden opportunities due to your inability to enter new positions. Do not rush on decisions in Forex trading just because you’re afraid. Limit your fear by going in with a well-developed strategy, and sticking to a reasonable entry and exit plan.
If trading has led to you having nervous breakdowns, and has affected the quality of your life, you might be experiencing a case of trader’s anxiety. Unless you’re a long-term trader, you’re probably going to be tempted to look at charts and the news all the time. Do not fall into this temptation, as this will only serve to strain you with unneeded anxiety. Most traders who suffer from too much anxiety have this tendency to immediately respond to sudden changes in price or news. The problem with this is that the cause for these changes is often temporary, and if you don’t take the time and caution to verify them, you might end up making a wrong trade.
It is important that you do not rush on decisions in Forex trading whenever you’re feeling anxious. You should avoid checking Forex charts too frequently as prices will naturally fluctuate as a result of the human activities in a country. Major fluctuations usually only occur whenever a major economic or political situation arises. Furthermore, the fear of losing money also influences the amount of anxiety a trader feels. In order to avoid losing sleep at night due to excessive worry, always make sure to come in with a stop loss strategy in your trades. Knowing that you’ll only lose a fraction of your money in the worst case will help reduce your anxiety to manageable levels.
Another big downfall for many traders is that they become too greedy and are never satisfied with the profits they have already. Instead of making a healthy gain on their trades, many Forex traders wait too long, hoping for the currencies to go up due to their desire or expectations to make more profit. More often than not, market prices may drop down for extended periods of time before they go up again. As mentioned before, good traders do not rush on decisions in Forex trading but they do know when to stop taking in profits.
As long as you don’t exit your position on a trade, any profit or loss you have at the moment is unrealized, and thus, is still subject to the fluctuations of the market. Unrealized gains may turn into loss if you wait too long, so be sure to set a reasonable target for profit before entering a trade.
Lastly, one of the biggest obstacles to successful trading in the market is due to unfounded expectations. This is a common problem for those who commit to a buy-and-hold strategy in Forex. Although it isn’t a bad strategy on its own, many traders are unable to exit because they’re hoping that prices would rise in the future. When the value of a currency drops significantly and you still cling to such a belief, chances are you won’t be able to exit anytime soon without taking in a significant amount of loss.
It may take years or even decades for some currencies to recover to a certain price level; going long-term is risky, especially for countries vulnerable to economic or political unrest. In order to become a better trader, there is a need to keep all these emotions in check all the time. If you want to become successful in Forex, you must manage yourself and be able to stick to your system no matter what. You should be able adapt to changing market conditions without compromising on your plan and your life outside trading.