Forex: An Emotional Rollercoaster Ride

Filed under: Learn Forex Trading |

Screen shot 2013-07-03 at 10.02.28If there is anything that I have learned over the past few years trading the forex markets, it is that trading the forex markets, much like life, is an emotional rollercoaster ride. There are tremendous highs (after a big winner), and desperate lows (after a long period of drawdown that there seems no way out from). And then there are periods of numbness where nothing much is happening either way. There are times of greed where you lose patience and over-trade, and there are times of fear when there are good trade setups that you should take but you do not because you fear an even greater drawdown. This is the essence of trading the forex markets, and if you want to be successful, you need to learn to control such emotions.

 

One way of controlling these emotions is to create a methodical set of trading rules for you to follow. For example, you might always trade 1% of your trading capital on any one trade, and you might always have a minimum risk-reward scenario of 1:2. You might also always set stop losses, to have certain conditions that must be met for entering a trade or an order (such as a price action signal confirming an important support/resistance level). When all of these rules are in place, it is then up to you to follow these rules and to ignore any emotional interference.

 

However, emotions should not be confused with your gut feeling about a setup, as many successful traders take trades based upon their instinct.  This gut feeling is not something innate, but rather, it is your unconscious mind drawing from past experiences, and past charts that you have looked at. However, it is difficult to separate gut feeling from emotion, and only the best and most experienced traders are able to do this. Therefore, to begin with, it is better to follow a strict set of rules, and to strive not to make any emotional trading decisions.

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