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Fear Factor in Forex Trading
Written by: PaxForex analytics dept - Thursday, 09 July 2015 0 comments
Trading is like any other business where losses are a part of the game. But losing over and over again can lead to psychological scarring that can paralyze and fill the trader with dread when approaching the trading table. It is well known that fear of losing actually leads to losing. Stops are placed too tight instead of giving the price action room to breathe. Trades often pull-back after entry which causes the fearful trader to panic and exit with a small loss to prevent a larger loss.
Traders focus should be on avoiding large losses not on small ones. If you cannot cope emotionally with a small loss, you will miss out on potential large moves because every trade you enter has the risk of turning against you. It is vital to know how much you are prepared to lose in any trade. Another catastrophic action is hoping a losing trade will retrace to exit at breakeven. More often this kind of expectation leads to even greater losses.
The fear generated by investing your own personal money is the main thing that must be overcome. It is the culprit in so many failure stories, people who just couldn't overcome their anxiety investing unwisely,
pulling out at the wrong time, missing a rise completely, all result in failure and are caused by fear. Accepting this fear and using it to your potential will make you a stronger trader able to trade freely and enjoy the thrill of the exchange.
Fear of missing good trades can be dangerous because it will often cause the trader to join the market at any price. Excitement and euphoria overrule the trading plan with little thought to potential downside risk. This fear of missing out on trading opportunities is something you will have to eliminate if you want to become a successful trader because if you don’t, it will cause you to over-trade.
The first step of becoming a more disciplined trader and having control over your emotions is becoming aware of them. If your results are not consistent take a close look to see if you are indeed following the strategy you outlined to yourself. Are you entering and exiting positions due to a well-defined signal, or was there some other reason. It is important to take a step back and have a close look at what is driving us into and out of the markets.