An Intern Learns: Controlling your emotions during Forex trading
I got inspiration for this blog while I was looking to trade a pair that had a clear trend over a 30min period, and noticing that some news releases seemed to have had an affect on the pair, I decided to trade the EUR/GBP. Going in for this trade I looked at a smaller time frame to pinpoint my entry point and then went short on the Euro. I realised how exciting this is – the adrenalin kicks in and you’re really on the edge of your seat. My unrealised P & L started to come in and I could see the first inklings of profit. To reassure myself that I had made the right move I used Bollinger bands and ADX indicators to show that there was evidence of a strong trend; the only thing left to do was to sit back and see what happens.
Did you ever hear the proverb about the dog that stared into the river while holding a bone its mouth? It saw its reflection in the river and, in an attempt to take the bone from the ‘other dog’, dropped its own bone in the river. If you want more than what you already have you could end up losing everything. Yep, that’s right, a trader’s worst emotion is greed. Of course greed in general is not a good thing at all, but in forex trading it can be especially harmful to your trading. We all want the money, that’s what we’re here for, but beware of deviating from your strategy in pursuit of greater profits. The market could go into a retracement or reversal and you could end up losing what you had.
Another emotion that causes traders problems is over-confidence. If you’ve been successful with a number of trades you may begin to feel confident that you know exactly what you’re doing. This can cause you to place higher trades than you possibly should. The risk here is that you could again end up loosing more than you want. Keep an eye on your margin and make sure you are trading within your means. Luckily MahiFX has a responsible leverage limit of 50:1, which means that if you do experience a loosing trade, it will be much less than if you had used a 100:1 leverage or more.
But there will be times when we do lose trades. In these moments you might feel angry that you made a mistake, that you didn’t do enough research or that you misinterpreted the indictors. A significant loss might even lead to a fear of trading again, for worry that you will incur similar or even worse losses. Even while trading, you may experience heightened fear or doubt in your decisions.
After doing some research into combating negative emotions in trading, one source suggested using a timer for when you feel particularly angry or upset. The logic was that these emotions do not last forever, and if you can time how long it took for you to feel better again, the next time you get upset you will be able to anticipate when you will be able to trade again. The best state of mind to trade in is a calm one – where you can think rationally about decisions and critically evaluate the best course to take. This technique will allow you improve your emotional response by training you to get back to a calm state.
However there are lots of other ways to combat negative emotion. One of the most important ones is to develop a strategy – and stick to it! If you’ve experienced a heavy loss and are scared to venture out into trading again, give it a try but stay with pairs that you are familiar with and develop and plan. Try using a trading journal, in this way you can be more methodical with your trading and where you’ve made mistakes in the past, by recording and reviewing them, you can learn not to make those same errors in the future. Also try set realistic goals for yourself. You’re not going to be the greatest trader ever overnight – rather try set goals based on your experience and budget capabilities. If these goals are realistic and within your reach, it is more likely that you will achieve these and this will in turn boost your confidence again.
Ultimately you need to be realistic about your abilities and know that at some point, the markets might move against you, or you make a tactical trading mistake and experience a loss. Take it as a lesson learnt and pick yourself up again. Remember you need to believe in yourself and what you’ve learnt. Remember you need to believe in yourself and what you’ve learnt. Stay calm when trades go wrong – you will be less likely to make emotional decisions that could lead to losses