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Emotional Intelligence in Forex Trading
Written by: PaxForex analytics dept - Tuesday, 16 May 2017 0 comments
Forex trading is a mind game and requires effective management of a traders’ emotions. Because trading is a flood of opportunity for both buyers and sellers, emotions often run rampant. However, making the best decision from a trading point of view is often the hardest emotional decision to make. The emotional intelligence is our ability to recognize and assess our own emotions and manage these emotions in order to achieve our purposes.
Emotional intelligence is made up of four main skills: self-awareness, self-management, social awareness, and relationship management. While self-awareness and self-management reflects the personal competence of an individual, social awareness and relationship management reflects the social competence. Alternatively, self-awareness and social awareness can be clubbed under ‘what a person sees’, while self-management and relationship management can be clubbed under ‘what a person does’. Thus, it can be understood that all the four skills are intertwined in a complex fashion.
Trading is a mind game and requires an individual to manage their emotions effectively. A professional trader must accept that forex will take them on an emotional rollercoaster. There will be times when a
trading strategy will seem invincible, returning a rapid rate of pips. In these moments, trader can become over-confident and risk more of their capital. On the other hand, when a trading strategy seems to be falling short, it can become difficult to stick with it and see it through. So the ability to keep emotions in check is absolutely vital.
Certainty in an executed trading idea is often a guise for greed and fear. As a trader, it is important to have a plan which focuses on entry triggers, trade size, and risk to reward ratios so that you’re acting in a mechanical manner. However, you should also be willing to exit your trade or accept the fact that moving forces in the markets can change quickly so you can avoid the painful experience of holding on to and closing out larger losses than winners.
Emotional intelligence plays a major part in the performance of an forex trader. The most important point to remember is that the human beings have the innate power to increase their level of emotional intelligence. A little bit of effort on the part of a trader will go a long way in nurturing the level of emotional intelligence. The increase in the level of emotional intelligence will soon begin to reflect in the trading performance.