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These days are full of emotions, not each person may cope with respectively and, unfortunately, our world of trading is not an exception.
Therefore, the topic of this day, as its name tells us, is going to be related to psychology again, in particular to different kinds of emotions, representing an incredible risk for trading, taking is merciless toll if the traders don’t learn how to control them or work with them properly.
Fear, greed and few other aspects – these are the topics we are going to discuss today.
So, let’s go…
1. Fear:
This is probably the most frequent “negative” emotion, accompanying not only our personal, but also business lives. Fear in trading is natural and comes at the moment when things do not develop as we planned before.
Albeit our fear may not be eliminated, we can still work therewith, and moreover, fear does not mean a danger only as sometimes, this emotion prevents traders to make hasty decisions that could bring uncertain results.
A frequent mistake, in case of fear, tends to be the fact that traders are afraid to e.g. open trading positions (after dropping to losses) or close trading positions earlier than planned.
Certain methods how some traders cope with fear:
- Use of limit orders (SL, TP)
- Meeting of a pre-set plan (e.g.: if the trading plan tells you open the position, just open it!)
- After you open your position, “leave your PC” (then, traders don’t have the tendency to reset it)
2. Greed
This emotion is very individual and can be seen rather with traders-newbies, achieving a profit with their first trades, believing that they will become rich soon. In these cases, trading, often reminds us of hazard where positions of incredible volumes are open.
Methods how greed may be treated:
- Observance of a trading plan
- Creation and observance of risk-management
- Pre-definition of a maximum volume of open trading positions
3. Hopes
Often, many traders live in hope that a non-ideally developing market situation turns to their profit, or conversely, a situation that is developing according to their wishes has the potential to achieve even better results. In these cases, hopes are unfortunately an incentive for traders to adjust (shift) their limit orders, becoming a crucial point for them as the strategies, that could be profitable from a long-term perspective, drop to red numbers at the end.
How to work with hope:
- Strict observance of pre-set strategy without changes
4. Disappointment
Disappointment is the result of an improper solution and all the emotions and mistakes mentioned above, created thereof, tend to have the worst impact. In fact, we may state that this is a condition when the trader does not know “which path to take.” He is so disappointed by his failure that he’s trying to solve this situation very irrationally, breaching all rules usually that should lead to profitable trading.
In this case, it’s optimal to stop real trading for some time, reassess the entire trading plan and reassess if it’s still appropriate to trade with the same trading strategy or not.
Note at the end:
A frequent and relatively simple method how traders may avoid negative impact of emotions is to trade in a so-called tandem. So, they’ll find another trader for them they trade with and “substitute each other.” They decide in two => less space for irrational acting.
If you would like to try out trading with top tier trading conditions and professional forex broker, don’t hesitate to try our demo account that may be open on our website completely for free and free of any risk: www.purple-trading.com
We wish you many profitable trades!
About the Author
Team Purple Trading
Purple Trading is a true and 100% fair ECN / STP forex broker providing direct access to the real market. High speed orders execution, no trade-offs, no limits for any type of trading, the most advanced trading technologies. Explore more about Purple Trading at www.purple-trading.com.
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