Let’s talk facts. No matter how strong or level-headed you are, you have emotions.
And naturally these emotions can influence your behaviour, thinking and decision-making as a trader.
The truth is that, controlling and managing your emotions when you’re in such a vibrant and dynamic market presents a number of psychological challenges.
Remember all of these Forex trading psychology stimuli we discussed in the previous chapter?
Fear, anger, impatience and greed?
All of these stimuli can lead to the deterioration of your perception of what is really happening in the market if they are not dealt with properly.
In this lesson, we will take a closer look at some of the emotions that hold you back when you trade.
These include fear, doubt and anger.
Why is it important we address this?
Because trading psychologists believe that understanding your emotions can mentally prepare you to handle them better.
We’ll explore different areas from how these emotions manifest themselves in trading, all the way through to what we can do to not let them get the better of us.
Fear. Or as trading experts call it, the performance inhibitor.
It’s one of the emotions that exerts the most influence upon a trader’s performance in the financial markets, and has been scientifically shown to “short-circuit” the trader’s decision making processes involved in forex trading.
Unless fear is properly addressed and dealt with, it can be the driver of emotional decision making and directly responsible for preventing you from following your strategy and therefore losing on your trades.
Now, that’s what I call snowball effect.
There are two main areas of fear, each with unique negative impacts upon the trader’s performance.
Fear of failure and fear of success.
Fear can overwhelm the trader after hitting a number of losing trades or after losing a trade larger than what they are emotionally ready to process.
In such cases, you have to make sure you are not risking more money than you are totally okay to lose.
If you are okay with losing the amount of money you have at risk, there is nothing to fear.
Simple as that.
And even though it’s pretty much impossible to get rid of fear completely, with some practice, you can learn to react and deal with it better.
You will never succeed unless you try.
Does trading make you angry? Do losing trades make you furious with yourself?
Whatever your answer is, anger is an incremental part of our emotional build.
It’s okay and it’s human to get angry. To an extent.
If you trade angry, it can cloud your perceptions and make you place trades based on emotions, rather than calculations.
And when anger overcomes logic, you’re very likely to fail.
For example, let’s say you risk too much money on a trade, and you end up losing it.
There’s a good chance that anger gets ahold of you and you are now going to jump back in the market to try and make that money back.
And this sort of behaviour is something that mostly just leads to another loss (which is expected since you are trading emotionally again).
Some call it Revenge Trading. Placing trades without any logic behind it, just to seek revenge on the market.
The market doesn’t have anything against you – whether you win or lose.
Be like the market.
Don’t trade angry and don’t trade to seek revenge.
But instead, remain calm and stick to your plan.
Consistency and risk management will take you further than anger and revenge trading.
You got this!
While these stimuli are certainly natural, to develop successful trading psychology, traders need to determine what they’re afraid of, as well as what triggers them and makes them angry beforehand.
This can be achieved through mental exercises and realising that even though there will be difficulties along the way, you can turn them into your advantage by thinking clearly and not letting your emotions control you.
The first step in gaining a trading mindset involves you, and mastering your own emotions.
Once you step beyond yourself a little and look at trading objectively, you’ll have a better chance to survive…. and thrive!