Managing Emotions in Forex Trading

How we manage these emotions will affect our overall decision making and in terms of trading - profitability.

Set emotions & ego aside

In the world of Forex trading, it is of paramount importance to maintain a level of discipline and not to let our emotions get the better of us.

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Traders need to come to terms with who they are! Traders also should be aware of the fact that they will eventually experience different emotions.

How we manage these emotions will affect our overall decision making and in terms of trading – profitability.

Our mental state has a significant impact on how we behave and the decisions we make. In this piece, we will take a look at which emotions traders commonly experience, harnessing those emotions

Maintain discipline

When thinking about our emotions in Forex trading, there are 2 stand out feelings that every trader will go through. Fear and greed. Fear affects traders decisions in that a trader will be less inclined to take any risk.

Traders may see opportunities in the market but fear can be so damaging in that traders run the risk of a case of ‘analysis paralysis’.

When a trader opens a position, fear can make traders close positions early and often before hitting a target stop loss.

If a position has crept into profit, fear can make us close a position too early as to not lose any profit. Holding on to a position for a little longer could result in hitting a target and earning more profit.

When a position is in loss Generally, fear does not allow us to behave properly. Fear can ruin everything! Not only in trading but in real life too.

Greed. As defined in the Cambridge Dictionary, is a very  strong wish to continuously get more of something, especially food or money – the latter being more apt for the benefit of this article.

Greed can make us over trade, take too much risk and deplete an account balance pretty quickly!

Traders driven by greed will enter the market without any real strategy, putting their account balance at risk as well as some frayed nerves.

A common misconception in trading is that these natural emotions we go through should be ignored. As we know from real-life, ignoring a problem will not make it go away.

Often it can make it much worse! So when we think about the way we feel when trading, we should think about harnessing these different emotions and using them to our advantage.

There are things that traders can do to harness emotions and make ourselves more successful.

Reduce size of position

When using bigger lot sizes, it is only natural that there will be an increase in adrenaline being pumped around our bodies.

Are you an emotional person? Bigger trade positions naturally translate into a bigger emotional strain. So if we reduce position size this can in turn naturally reduce our stress levels resulting in a clearer thought process and theoretically – better trading decisions.

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Keep a record or journal of how you are feeling

Write down exactly how you feel at the time of entering a trade. Then we can look back to see what the catalyst is for how we feel at that time.

What exactly we were feeling at the time can be invaluable at a later date when learning to identify which specific emotions are attached to different assets we choose to trade, lot size we choose and initial investment size.

It is knowing which emotions are detrimental to our trading account that is the trick to success here. Keeping a log helps us analyze our own performance and identify areas for improvement.

What is of great importance is to avoid being sucked into revenge trading. Traders can occasionally fall foul after a significant loss.

This is where a trader will in effect ‘chase’ their losses and get straight back involved in a new position when the best course of action may be to take a step back and take stock of the current situation.

Use a blend of analysis

When performing your analysis before getting involved in positions, it is important to use a variety of technical analysis fundamental analysis & sentiment analysis.

It is also useful to make use of daily analysis. EagleFX has within its site updated daily market news whilst also lending its users access to an economic calendar.

Sign up is completely free! Users can enjoy access to the latest global, economic news to make a more informed decision when entering a trade.

Choose a strategy and stick to it

This does not have to be a rule for the hole of your trading career but it should be a rule adopted for a certain position just opened when trading a particular asset.

When managing our emotions it is important to have a plan and stick to it. This is often easier in thought rather than action but maintaining personal discipline and control will, in theory, yield better results in the future.

Summary

To conclude, it is key to keep ourselves grounded, conduct a variety of research and make use of economic calendars. Materials are abundant online to assist traders.

The key is in adding the right ingredients to the mix to suit YOU! Identify what sort of person you are deep down and you will quickly be able to identify what strategies would be best suited for you and which styles fit better to your personality.

Knowledge is power in the trading game.

Head over to EagleFX today to take advantage of a range of features to aid you in your education such as the daily market analysis.

Build on your existing knowledge today and take advantage of $10 deposit minimum, micro lot trading and competitively tight spreads.

Disclaimer: The content of this article was provided by the company, and does not represent the opinions of Finance Magnates.

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