Why the Emotional Forex Trader Fails

Emotional trading is the biggest pitfall that the forex trader can experience. When the trader loses control of his emotions and lets them determine his trading decisions, he is asking for trouble. And this problem is something that is experienced not just by novices, but also by more experienced traders who should know better. Emotion is something that should never enter into your trading process since making money in the forex markets involves a rational process of analysis. Only trades who have the gambling mindset believe that they should listen to their emotions.

Here are the three most common emotions that traders experience?

Fear. Why do traders experience fear? Basically they are afraid to lose money. They are afraid that their trades will move against them and they will lose their investment. But what lies behind these fears is the general fear of losing everything and becoming poor.

How does fear manifest in your trading activities? The most common manifestation of fear is paralysis: instead of acting, the trader fails to act. When confronted with a losing position, the trader does not close it, and when a trading opportunity presents itself, the trader fails to take advantage of it.

Greed. Also known as avarice, this emotion is recognized as one of the seven cardinal sins. Traders who experience greed basically want more and more, even if they already have everything they need. The trader who has been taken over by greed holds on to a position longer than he should in the hope of earning more profit. He also keeps losing trades open longer than he should in the hope that it would reverse and become a winning trade.

Hope. Isn’t hope a positive emotion? Not when it is applied to your trading activities. When a trader trades with hope, he also acts in ways that he shouldn’t. For example, the hopeful trader may hold on to a losing position because he hopes that market conditions will eventually turn in his favor. Of course, it can also be positive if hope emboldens a trader to hold on to a winning position so their profits can run on. But in general, it would be better to be careful when making your trading decisions.

References: Some of Tips have been taken from http://www.mtrading.ph/education/  and http://www.xe.com/currencytrading/