When it comes to trading another aspect of utmost importance is purely psychological in its nature. Psychology refers to the way every trader perceives what is happening in the financial markets and how this perception can be influenced by emotions and one’s susceptibility to different biases. Emotions are your worst enemy on the market and learning how to diminish their impact on your decision making is a rather tough task that can be achieved through years of experience.
Euphoria works hard to ensure that wherever we look we see nothing but wonderful prospects for limitless profits. Under normal circumstances euphoria has little relevance for most traders because most are aware that success in forex trading is not child’s play. While magnificent profits in a short time are sometimes possible such gains are usually the result of a period of study and practice during which the false promises of euphoria are proven repeatedly to be meaningless.
Winners build confidence and without any losers to shape character the trader can develop so much pride that he or she forgoes disciplined steps. What ends up happening is a cycle of a bad trading life where the winners build confidence, confidence builds bad habits, greed will amplify bad habits eating up the gains and finally desperation causes an even quicker decline. The falls from great heights to dismal lows are easier than you might think especially if you are not aware of these emotions.
Euphoria is a variety of greed which arises after a trader has experienced a streak of winning trades or a single large winner. It builds an exceedingly positive sentiment and confidence often luring you to enter and hold many new positions, usually in the same direction as the previous winner which can end badly. This is the reason why some traders experience their biggest losses right after they’ve had a good winning streak.
It is very tempting to try and ride the winner’s wave immediately after you’ve earned some good profit, but you must keep your feet on the ground a draw a thick line between reality and the sensation that everything you do will turn to gold. Many seasoned traders will take a break after a spectacular string of winners. This is because they are self-aware and know that no matter how much they try this pride can eat you up and cause you to look at the market with such a twisted perspective that execution becomes undisciplined.