Forex trading successfully involves careful analyzing of data that is changing 24/7. This is not the forum for split-second decisions nor blind calls. You need to be consistently working a well thought out strategy that has been derived from real life data. If you suddenly find that you don’t know why have entered a trade, then you have most likely fallen victim to emotional trading.
Learning to control your emotions is a pivotal point in every young trader’s career. Once you are able to differentiate between trading from the gut and trading with sense, the losses stop and the gains begin.
To help you reach that point sooner, there are a few strategies you can employ:
• Seek an experienced partner. Having a partner to work with in the Forex market not only helps to augment your earning potential by increasing the investment capital, he or she will also assist you in keeping those emotions in check. With two minds looking over the details of a trade, there is little room for emotions to enter the equation.
• Although the Forex market is a fast paced one, you still have the time to overthink your decisions. In fact, if you find that you are second guessing a trade, that is probably the type of gut instinct you should be following.
• Keep track of your plans and strategies inside of a journal; this way when faced with a decision that may be emotionally charged you have a record of the plan you have used in the past with success, instead of basing your trading decision on how you feel at that exact moment.
• Once the trade is entered, you should always stick with your plan. Don’t allow fear to let you end the trade early or greed to keep you in past your stop loss. Trust what you have laid out based on careful analysis of the market and trends and allow your trades to stop where you originally meant for them to.
Desperation is one of the key emotions that will lead to a trader’s downfall. Entering a trade when you urgently must make a profit is an easy way to ensure that you won’t. In order to avoid this you need to examine your motives for trading routinely.
• Are You Trading With More than You Can Afford to Lose? Ask yourself this before entering any trade. If the answer is yes, then you need to examine why. Are you close to an age where you feel like you should have a more substantial portfolio? Or maybe you have a child about to enter college? Having these types of large goals to meet will often make a trader put more money into the market than he should.
• Are Your Risks Too High? You may not be balancing the risk to the reward ratio the way you should. In any trade the ratio of winning should always be at least double the risk of losing.
• Are You Ignoring Your Stop Loss? The stop loss is in place to prevent you from losing more money than you can afford. Wanting to be right often motivates a trader to keep a losing trade going in the hope that it will turn around in his favor.
If you answered yes to any of these questions than you are trading out of desperation. The decisions you are making are being motivated by a sudden need to make a large profit. When you are trading to meet an important goal, it will cloud your judgment and cause you to make decisions that are based on another emotion, greed.
Treat Trading Like A Business
You have entered the volatile world of Forex trading because you want to make money and you heard that Forex has two distinct advantages over other markets:
• Low Start Up Cost: Unlike the stock market there is no bottom limit on how much you have to have in order to trade with Forex. It always reminds of the old Lottery slogan: “all you need is a dollar and a dream”. Dreaming aside, you can start trading with just $1 in your Forex account. Liken it to being handed the keys to your business without having to invest a cent.
• Around the Clock Trading: You don’t have to give up your day job right away to start trading in the Forex market. There is always an active pair somewhere that you can find reason to trade on. This will give you time to nurture your new business venture while still bringing in a steady employment. It takes time to learn how to be a gainful trader, and this type of market allows for that.
There is no room for emotions when you are trying to run a business. Treat your trading enterprise in the same way. When you begin to feel the pull of desperation to make money, you have lost focus on the reasons why you chose this venue. Stop, take a break and reassess your trading habits once you have been successful at putting your desperation to the side.
Having long-term goals is a good thing so long as they are realistic and flexible. We all want to see our first million in five years but don’t let that cause you to behave irrationally when you hit the four and a half mark and are still shy. You entered this market to make money, treat it as a professional choice, not a personal one and you will quickly learn how to prevent desperation and other emotions from clouding your decisions.