Trading Emotions

Basic but important info about trading Forex

Trading Emotions

Postby Paul » Tue Feb 24, 2015 6:26 pm

There are dozens of books written about emotions in trading . It is a very large subject so I will identify here the key points that you need to look out for.
Trading in Forex can be a very emotional activity. Here are some classic emotional responses.

1. Invicibility
You take a trade it works out great you get some pips for the day. Your happy! . So you take another trade and that works out too . Your Super happy and feeling invicible. You then take 3 more trades during the day and all of them lost and instead of being happy you now are thinking "Why didnt I just leave while I was ahead".

2. Greed
See 1. above, you made some pips and then lost them all and more because you wanted more , you failed to limit your gains just as much as you should limit your losses . There is always another trade on another day.

3. Revenge
Now we are in bad territory you lost your pips already gained and you want to beat the market with a stick and get them back , you might , but it is unlikely that you will . Revenge is now clouding your judgement.

4. The "what ifs" the "maybes" the "could haves " and the "should haves"
Here's a classic . you plan a trade it works out great . You have set TP and SL . It hits TP + say 50- 100 pips . The price then keeps rocketing and you "could have " made another 100 pips. Now think why did you put that TP there , it was part of your plan right ? So you traded according to your plan. The trade worked, pat yourself on the back and have a beer ! Dont even think about getting pissed cos you missed those extra pips . You succesfully took your share of profits from the market.

Other side of the coin is your SL . You plan a trade and it hits your SL and reverses . GAH! ive seen it many times and will continue to do so . Thats part of trading you planned a trade and stuck to it this time it didnt work out .

So lets look at what happens when emotions come in .

a.You had a winner at your take profit level . and price carried on through your TP and you could have got more pips (remember greed?) So the next trade for some reason you either dont set a TP or you set a TP way above where it should be. Guess what happens ? Price takes your trade into profit 50 -100 pips and your trying to let it ride for more (remember greed?) then suddenly a news spike wacks your trade the other way and your stopped out for a loss.

b.You had a losing trade from SL and it bounced at your SL and went back to a nice profit . Next trade you possibly do the worst thing ever and not set a SL .(remember revenge ?) price goes the other way and your in a loss . When exactly are you going to close this trade ? Whats the plan ? Price continues against you and your now 20- 50 % down on your account on one trade ! Not looking great is it .
All of the above can be avoided partly by setting out a trading plan and sticking to it .

5.Cut the losses and let the profits run:
Not really an emotion but this is a very important rule to get into your head
You must maximize your profits by staying in the good trades and get out ot trades quickly that are not working .
The emotional part is being able to leave a trade running that is showing you profit and cutting a trade that is in a loss.
This is probably the hardest part of trading.
Paul
 
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