As you trade forex, you will realise that certain incidents and price movements incite some powerful emotions inside you. In fact, the way you perceive the forex market has a direct impact on your emotions and, hence, your performance.
Effectively, how successful you are in FX trading depends entirely on what emotions you feel and how they affect you. Here are two of the most potent emotions you would feel and a strategy that will allow you to cope with it.
Greed is an emotion that will start affecting you when you get some wins under your belt in the FX market. As you win more through FX trading, you will feel the excitement that comes through beating something complex. Furthermore, this excitement would start to build up as you see your trading account balance grow.
Resultantly, you would become more and more impatient about gaining more and would try to stretch your financial capabilities to get more profits. However, this is where you would err, because when you try to get more profits you also expose yourself to more risks. A single major reversal would see you floundering again.
Fear is the exact opposite of greed when it comes to FX trading. It is an emotion that would manifest inside you when you incur too many losses. Nothing incites fear than to see your hard earned money dwindle into nothingness in your forex trading account.
As you feel this emotion, you would become more indecisive and your actions excessively defensive. The result would be that by reducing risks, you would also reduce your abilities to make profits.
FX trading is like walking a tight rope between chances of making profits and chances of incurring losses. You need to balance gains with risks. Your emotions would prevent this from happening. Here are two ways that you can counter them.
Be More Informed and Experienced
There is no better way to counter emotions than to experience them as much as possible. Most experienced FX traders know how to cope with emotions because they have been trading for a long time and have learnt to recognise and nullify their emotional responses.
In order to be more experienced in FX trading, you need to practise a lot through demo, mini, and micro accounts. As you progress through these accounts, you would experience more and more emotions which would prepare you for the big thing i.e. the live account.
Create and Stick to a Strategy
Systems will always beat emotions. This is why you should create an FX trading strategy and endeavour to stick to it no matter what happens in the market. Your trading strategy should be comprehensive with each action being well defined in it.
The more stringent your FX trading strategy is, the less likely that you would make mistakes because you are emotionally compromised in the market. Moreover, an FX trading strategy would always get you significant profits as well provided you have taken into account all the basics while devising it.
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