The Psychology of Forex Trading: Greed and Fear
Traders tend to make mistakes and break their own trading rules.
Winners and losers are known to have heightened feelings. For one it is euphoria, for the other, usually a sharp decline in self-esteem. Anyway, if the psychological state is disturbed to one or another side, trading will not go well.
What then should a trader strive for, if not for money? First of all, you should not think about profit but about the trading perfection! The money will come by itself if the trader works only within his own system, proven by time and demo account.
Greed in trading
Some people are not willing to part with a cent of their money. As traders, we all know that losing trades cannot be avoided. That's the price of trading. And when you hate losses, become prone to make bad decisions, you are often guided by gambling and make other mistakes which will make you lose even more money.
Losses from greed to close losses on time lead to even bigger losses, right up to the liquidation of the deposit.
Only a psychologically balanced trader who adheres to the rules of the strategy and sets protective orders will profit in the long run.
Fear in Forex trading
Some traders are afraid of losing their money. Money which you are afraid of losing should not be invested in trading. This fear is due to the fact that the invested amount is significant for the trader. A trading signal appears, but the fear is too strong, because there is a risk to lose all or part of the amount, it puts psychological pressure, and the trader looks for ways to avoid trading.
Such traders enter and exit the market quickly and do not let the profitable trade reach its full potential. Of course, by doing so they avoid large one-time losses, but these mistakes will affect their trading accounts to an unimaginable degree. And all this up to a certain point, up to a mistake, when the planned small plus suddenly turns into a big minus, which greed prevents them from closing.
And the fear of losing everything makes them make inadequate decisions, putting aside the rules of the trading system. Although, usually these traders' algorithm is poorly prescribed.
Forex trading is a psychology
A simple example, let it be from the stock market trading. A trader bought a stock for $1. According to forecasts its price should reach $2. But it stops at $1.4 to $1.45 and oscillates there for a long time. The reason for that is the steady level created last week. When this happens, doubts begin to overtake the trader. He starts to think that there are not enough buyers and the price will soon fall again. He exits the trade and immediately the price breaks the level and reaches $2.5. Yes, he's made some money, but it's also a form of loss. Usually, in this case, the trader experiences more pain than with a loss in the usual way, when the price went against him. After all, he had calculated everything correctly. His trading system was giving out a successful signal, but he failed to use the "technique". The trader was ruined by the psychological component of trading. As a rule, he or she will get angry, blame himself or herself for not being patient enough and, in order to compensate for the loss, will start making random deals. And random deals, like random connections, rarely lead to good.
It is an interesting way trader adapts his psychology to forex trading by rearranging his thinking. Like Buddhist monk, he learns himself bit by bit, progresses, thereby making his career. To achieve long term success it is not enough to arm yourself with the most modern and most secret Forex strategy, you must also learn your thinking process, because forex trading is first and foremost a psychology.