Being the largest financial market in the world its little wonder millions of people come to the forex market everyday with the sole aim of making money. Forex traders around the world participate in a highly leveraged and volatile environment. It’s a well known fact that 95% of traders never make any money from trading. You may ask yourself how can only 5% of people who trade the forex market be successful and the other 95% leaves with nothing? The answer to that question is simple; the 95% of people, who leave with nothing, cannot control their emotions and treat the markets like a casino. The 5% of traders who are successful may not all be more intelligent than the 95% however they have one huge advantage in that they show no emotion while trading.
There are 3 main emotions every trader at one point in their careers experiences; Greed, Fear & Hope. The successful ones learn to control these emotions and go on to make lots of money!
Greed – Greedy traders always want more. They’re not content with what they should be and are always waiting for the market to go that little extra and make them a few more $$$’s. Greedy traders just see money signs while trading, they pay no or little attention to what the charts are telling them and often fall in to the trap of over risking and over trading. Greedy traders risk large chunks of their accounts thinking ‘’the more I risk, the more I make’’, this is often not how the markets work. Finally, greedy traders over trade! They think that by taking more trades they will make more money.
Fear – Fearful traders are scared to lose. They’re not comfortable with the risks associated with forex trading and out of fear of losing money, place very few trades. Fearful traders often close a trade too early, once they’re showing a small profit. They’re always worried the market will ‘reverse’ and go in the opposite direction to what they’re expecting. Fearful traders struggle to make any headway in the markets and often leave with a little more or little less than they came with. They place few trades and don’t have the patience or confidence to let the market do what it’s doing.
Hope – Hopeful traders are closely related to gamblers. They come into the market ‘hoping’ they’ll make money. They place trades and ‘hope’ it will go in their direction. They often let bad trades run into even worse trade hoping the market will turn and bring them back to profit. They often let good trades turn bad as they hope the market will go that little bit extra and make them a few more pips. Hopeful traders have no real plan and use little market analysis in their trading. They are similar to a novice snooker player who simply ‘hits and hopes’.
It’s not uncommon for traders to experience all 3 of the above emotions at the same time; however it is possible for traders to overcome these emotional obstacles and join the 5% of ‘emotion free traders’.
How to Control your emotions –
DON’T over trade – Overtrading does not mean you will make more money. All you do when overtrading is expose yourself to needless risk. Knowing when to stay out of the market is as important as knowing when to enter the market.
DON’T risk high – Risking large parts of your account again expose you to needless risk. Forex trading is not a ‘get rich quick’ game. Using good money management and risking a fixed % of your account greatly increases your chances of slow and consistent growth.
The trend is your friend. – This common saying is very applicable when it comes to forex trading. Counter trend trading can be a profitable way of trading, however trading in the overall direction of the market is generally seen as a much safer way to trade.
Make a Plan – A forex trade plan is something every trader should have. A trading plan does not take a long time to make and is comprised of a set of rules you follow before taking any trade.
Stick to the Plan – It’s easy to get thrown of course. There are literally thousands of different systems and methods people use to make money. Not giving something enough time is counter productive in forex as you will be going from one thing to another with no real plan or direction.
Keep a journal – Recording every trade you take and the reasons behind it greatly improves your trading and also lets you analyze what works for you and what doesn’t. Trading aimlessly with no record of what you’re doing or why, will encourage you to make emotional decisions which can be detrimental to your trading.
It’s a difficult art to master but if you can learn to control your emotions and become an emotion free trader you’ll be well on your way to the 5% club of successful traders. A winning trade should be dealt with in the same way as a losing trade. Greed, Fear and Hope should never come into play while trading.
