The Dangers of Trading with Emotion

Filed under: Learn Forex Trading |

Probably the biggest danger to any forex trader is yourself and your emotions. No matter how well we manage them, we all experience emotions of some degree when we are trading; so it is important that we are aware of them and manage them effectively. When we are doing well and have a series of successful trades, we feel elated and start to think that we cannot lose. We cast caution to the wind and put trades on that we normally wouldn’t, only to see all of our lovely profits wiped out. Conversely, when we are on the back of a series of losing trades, we start to doubt our methodology and ourselves. We try to catch up by putting on trades that we normally wouldn’t through bad judgment or experimentation. Our emotions can rule our trading decisions if we let them.

 

So what can we do to curb these dangers? Well, one thing you can do it to control when you trade. If your emotions are particularly strong after a winning or losing trade, perhaps you should shut up shop for the day and come back when your emotions have subsided. Another thing you can do is to write a trading diary and include how you feel after each trade. Then later, you can analyze the data and try to understand why you have been making bad trading decisions.

 

Probably the most important thing is to be aware of your emotions, and you should practice being logical and try to make good trading decisions despite how well or badly you are doing. If you can stick to your game plan regardless of how the results are going, then you are on the right track. Write down your trading rules and stick to them at all times – and through all emotions. In the long run, your trading bank should be in much better shape.

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