When it comes to forex trading business online, trading psychology is an important discipline that needs to be studied and understood by anyone who aimed towards long-term success in the forex market. Self-mastery and emotional control are key to achieving consistency when trading forex greed, fear, euphoria and panic are powerful enemies to rational decision-making that should be guiding our forex trading choices.
The four psychological effects that a forex trader needs to consider when trading forex online are as follows:
1. Greed: In forex trading, if you only buy (long) you will make money or if you only sell (short), you will certainly make money in your forex trading but if you are a greedy pig that both buy and sell in the market, you will certainly lose your money.
Traders are greedy when they don’t take profit because they think a trade is going to go forever in their favour. Another thing that a greedy forex trader do is add to a position simply because the market his moved in their favour, you can add to your forex trades if you do so for logical price action based reason, but doing so only because the market has moved I your favour a little bit, is usually an action born out of greed. Obviously, risking too much on trade from a very start is greedy thing to do too. The point here is that you need to be very careful of greed, because it sneak up on you and quickly destroy your forex trading account.
2. Fear: In forex trading, fear has the opposite role of greed in our forex trading decisions. Instead of inspiring us to trade like a machine gun, opening and closing portion with the speed of lightening, fear convinces us that nothing that we do will be profitable in the long term, regardless of the power of our analysis, and the amount of study and consideration gone into perfecting our method in this case, a fearful forex trader will be unable to wait for the realization of a profitable position, and he will be unwilling to act on the basis of rational expectations. in addition, the fearful trader will be unable to realize losses that result from mistaken assumptions, and the red link in his account will keep spreading everywhere as a result. The result is usually ruined as fear leads to more and more irrational decisions, and few treads and profitable, a few long-hold losing trades will eventually wipe on the account.
3. Euphoria: While feeling euphoric is usually a good thing. It can actually do a lot of damage to a trades forex account after he or she hits a big winner or a large string of winners. Traders can become overly- confident after winning a few forex trades in the market, for this reason most forex traders experience their biggest losing periods right after they hit a bunch of winners in the market. It is extremely tempting to jump right back in the market after a “perfect” trade setup after you hit 5 winning trade in a row …… there’s a fine line between keeping your feet grounded in reality and thinking that everything you do in the forex market will turn to gold.
Many forex trades enter into a tailspin of emotional trading and losing money after they hit a string of winners. This is because they feel confident and euphoric and forget the real danger of the market and that any trade can lose. Finally, you never know which forex trade will be loser or winner.
4. Panic: In a panicky situation, the forex trade sees nothing but losses in the forex market, with no possibility of concluding a profitable trade. This is an exceptionally strange way of thinking in the forex market, since by definition, the loss of someone must be another person’s gain. When a forex trader is losing large sums of a long currency trade, another trader is possibly making large profits on a short trade on the same pair.
This fact by itself should have helped forex traders to be more realistic in response to bouts of panic in the forex market, but experience shows that this is not the case.
Panic can be caused by volatility, price fluctuations, loss of confidence etc.
Finally, dealing with the problem associated with forex trading psychology, we must minimize the role of emotion in our trading decision.