Excessive emotion is not the best trait of a trader’s character. Emotions are some of the worst enemies to forex traders. They often interfere with perfect timing by making traders close profitable trades prematurely and forcing them to wait till small losers become big ones. All in all, they increase the likelihood of making costly mistakes in daily trading.
Emotions sometimes get in the way of focusing on the trading process and evaluating the market situation efficiently. That is why all forex experts out there share the same standpoint on the matter. They recommend learning to suppress emotions. However, this is a very difficult task. How to do that? Where to start? What factors to pay attention to in the first place? Let Richard Perry answer these questions. He is a well known FX expert for London headquartered and FCA regulated Hantec Markets.
Mr. Perry discussing EUR/USD trading on CNBC.
Reasons and Consequences of Emotional Forex Trading
It is not a secret that forex trading is subject to substantial risks. On the one hand, you strive hard to make as much money as you possible can. And you seem to have everything required for that – enough money, knowledge and skills etc. On the other hand, nobody can guarantee that you are going to stick to the plan at all times. Trading is risk, and that is the major reason why traders get nervous from time to time. We are human beings, not robots. Therefore, we cannot get rid of emotions completely unless you don’t care about you trading capital, which is a bad position to take since in this case you are not motivated to trade in order to make more money. With that said, it is useless trying to turn completely cold-blooded. Instead, you should learn to control your emotions or at least to avoid letting them take control over you.
According to Richard Perry, losing trades is not the only thing that can make the trader emotional. Big wins can also make the trader overexcited and careless. This is your lucky day (week, month). Your trading results are much better than expected. You feel overexcited and at some point it seems to you that you can totally destroy the market with your unbeatable trading strategy or your trading skills. As a result, you turn reckless and eventually start trading big against all the reasonable risk management rules and eventually losing big if not all of your equity. This type of thing happens to many rookies and even advanced traders. However, this is not what a professional trader should do during up-streaks.Draw downs can confuse a trader as well. According to Hantec Markets, during times of bad luck in FX trading, it is very important to stop and look around to see what is causing those multiple losers and reconsider the trading tactics if necessary. However, instead of being smart enough to analyze another down-streak, many traders do fall prey to their emotions.
Mr. Perry says that more often than not, inexperienced traders feel angry and want revenge. Therefore, they start striving hard to recover all those losses at all cost, only to find themselves now losing even more most of the time. Emotional trading can never lead you to long-term success in forex trading. That’s for sure!
There is another kind of emotion hindering traders results. To make it clear, lets imagine that a trader has closed a very profitable trade or that monthly profits are exceptionally big. At this point, the trader may feel very proud of this achievement. However, at the same time, in the back of his mind he may be afraid that he is not going to repeat this success anymore. This may lead to the fear of losing money or under performing, which may further translate into a state when the trader stops all trading or reduces his trading activities to a minimum. If this becomes the case, it is clear that one will never make money trading forex if you do not trade. As such, one of the best tips to reduce the influence of emotions is to have a decent plan and stick to it at all times regardless of the current market situation and PnL. It is also important to take necessary breaks to let your emotions and the markets breathe. Getting quality sleep is also a must and is non-negotiable to maintaining healthy emotional balance in trading.
Overcoming Emotions
Perry recommends checking your degree of emotions. Actually, this is not that difficult to do. Next time, when you are under pressure due to volatility spikes or other stressful market events, try to look at your behavior. Alternatively, you can register a live account and a demo account and trade simultaneously on both of them. If the results differ a lot, chances are you are afraid of losing money.
As for overcoming excessive emotions, it is always a good idea to start a trader diary. It will help you to find out the reasons why your trading results leave much to be desired, including profitable and unprofitable techniques within the scope of your trading strategy. Improving the efficiency of your trading and getting rid of emotions doesn’t happen in a matter of days. So you have to be diligent, patient and consistent in what you do. This will lead you to long term success.
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