Emotions-can-be-the-biggest-barrier-to-our-forex-trading-outcome

Emotions can be the biggest barrier to our forex trading outcome

Feb 2 • Forex Trading Articles • 387 Views • No Comments

Overcoming and controlling our emotions can be a considerable barrier to overcome. To suggest to a relatively inexperienced trader, that they’ll eventually overcome one of their major trading issues and that it just takes time, provides very little in the way comfort, particularly when traders are struggling.

Neither does the suggestion that automation may help, despite those two separate pieces of advice being valuable; experience and time spent in the market will eventually help us develop emotional control. And automation can immediately negate many negative trading issues, such as; over trading, revenge trading and making knee jerk decisions outside of the scope of our trading plan.

Having a trading plan and sticking to it can also provide us with an emotional anchor; a pivot by which to reference and make all our trading decisions. But if we’re inexperienced traders then violating our trading plan will be a common occurrence. Also well intentioned micro adjustments of our plan can lead to wholesale changes and before we know it our trading plan is completely compromised and unrecognisable, from the original plan we worked so hard to develop.

So if we’re inexperienced and we’ve discovered that our emotions are getting the better of us, what remedies can we apply to address the issues? Before we go any further it’s important to notice a positive aspect regarding our emotions; if we’re aware that our emotions are effecting and interfering in our trading, then we have (by default) made a significant breakthrough. Recognising that we may be allowing emotions to interfere in our trading decisions, is an important realisation and offers up an excellent opportunity to remedy our errors.

The most common reasons why we’re driven by emotional decisions were trading is concerned, can be identified and then isolated. We’ll have made many of the novice mistakes which have been made by all inexperienced traders over many years. The references listed earlier; over trading, revenge trading, knee jerk trading, greed, the fear of missing out and trading without a plan are common mistakes. As are forcing trades into the market at random points for equally random reasons, are we trading at the wrong times of day etc? However, let’s focus on one of the most counter intuitive aspects of trading that novice traders have to contend with, trading less.

Trading less during the early parts of our career is essential, trading more does not equal more profitability. This is a far more difficult concept to contend with than we’d at first imagine, as we appear to be educated from an early age and in some ways programmed to relate rewards with effort. To discover trading doesn’t involve what we’d term as “hard work”, well not in the manner we normally associate with the two words, can be a tricky issue to take on board. Our hard work were trading is concerned, involves study, months and perhaps years of research, practice and effort. It’s not the conventional hard work many of us have been brought up to respect.

 

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Once we discover an edge we can simply replicate that procedure time and time again. However, in the early stages of our career simply trading one security, on a day trading basis, will alleviate many of the emotional issues we’ve begun to suffer from. The greed will disappear, the knee jerk decisions should stop, the fear of missing out likewise, we should become more patient and perhaps allow the market to come to us, as opposed to chasing trades that aren’t viable.

We could begin a fresh start by identifying one security to trade. Let’s suggest one out of four of the major currencies pairs; EUR/USD, USD/JPY, GBP/USD, or USD/CHF. We then decide (as day traders), that we’ll limit our trading losses to a maximum of 2% per day, only manually trade at key points during the day and risk only 0.5% of our account per trade. Such a simple exercise could provide a platform to begin again and rebuild our trading method, whilst helping to eliminate emotional decision making.

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