Trading Academy

Lesson 41


Trading the Forex market successfully requires very sharp mental and psychological strength. This involves one’s ability to control his/her emotions. A trader can have a successful trading system, but if he/she does not have the discipline to follow it, the result will still be negative.

When a trader is thinking clearly and acts without emotion, he is said to be in the zone. If you are in the zone, you are able to control your behavior and follow a strategy in a logical and systematic way. 

The following are emotions that can negatively affect your trading results: fear and greed cause the most damage, but the euphoria and revenge trading are also dangerous.

Fear is something most novice traders experience, especially when they haven’t got an efficient trading strategy or they don’t trust their trading plan. Fear manifests as either not taking a trade when you have a signal, or exiting a trade too early before your target is reached. To conquer this fear, you have to make sure you are never risking more money than you are OK with losing on a trade.

Greed,  on the other hand, may talk you into assuming too much risk and violate your trading plan. You might also decide not to take profits and think that a trade is going to go forever in your favor, just to end up with a loss.

 Euphoria – traders often become over-confident after a big win or a string of winners, and it becomes extremely tempting to jump back into the market again and again. For this reason, most traders experience their biggest losing periods right after they hit a bunch of winners; they forget that any trade can lose.

Revenge trading stems from the frustration you feel due to a loss. You become “upset” on the market and you are determined to get your money back, by opening a larger position. This usually ends up with more losses, as emotional trading causes you to bypass risk management and trading plans.

An important thing to keep in mind is that it’s impossible to trade perfectly, so if you suffer a loss there’s no reason to go into a spiral of anxiety. It is just a small drop in a bucket of hundreds of trades you will make over time. You must be prepared to accept losses.

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