It has been a few months since we last wrote something. During that time, I have been watching the Markets move and do all the things that we expected them to do. We watched, with anticipation, how the Market would respond to the US fiscal cliff issue and others. We watched how the news portrayed different events around the world; both good and bad. I have also had the opportunity to witness some beginner Forex traders try to make sense of everything. There is one thing that I have seen over and over. Beginners usually trade with their hearts, not their heads.
The key word in this lesson is Emotions. Forex trading will always be full of them, the movements of the Forex Market, many times, are based on them. It is obvious that some traders are ruled by emotions by their rush to buy or sell and how it sometimes overflows their plans. A common question that I have heard in the Market is “Why did I ever do this or do that?”
I have commonly asked myself what is driving us to get into the market when we are not fully prepared and exit on prices that completely disagree with our plans. I can’t say that I know every reason why many of us (and all beginners) do this, but I would like to suggest that there are two main reasons why. Those two reasons are Greed and Fear.
Greed comes when the Market goes as we expected then, quite naturally, we want more! We somehow get the notion that it will continue for very long time. Maybe the laws of physics haven’t quite sunk it – “what goes up… ” Somehow, we seem to have forgotten that eventually, everything changes.
The thing that has to be remembered is that in order to have successful trading, you need a good strategy AND discipline to execute that strategy. No matter how good it is, trading is completely useless without proper disciplined execution of the strategy.
The Fear comes when we realize that there is a profit and we actually miss it. The other time Fear plays a part is when we believe that according to the way the trade might be going, we begin to fear the loss of money. I have learned that, until we learn to have dominion over fear and greed, our results will be very unstable. Worst yet, my greatest concern for new traders is, if money management is not strong, many emotional traders will soon be out of money – well before they even had a chance to establish themselves as a legitimate traders.
So my advice to you, as a beginner or advanced trader is simple; don’t let your emotions rule you. There is no place in the halls of successful Forex trading for individuals who cannot dominate their emotions – especially fear and greed.