As a trader, I have encountered all sorts of emotions when I trade forex and I can say that these emotions can sometimes affect the way I trade and affect the decisions that I make. As time goes by and as I become more experience in trading the forex market, I begin to identify these emotions before it can have an impact on my trading decisions and in turn my trading account. I can dare say that trading with emotions can be dangerous to your account and also to your survival in the markets.
These range of emotions I believe gets triggered in various situations. It is within certain context of where you are in during the trading session that triggers these emotions.
When you are watching the screen and you are not in any trade context.
Before taking a trade for example, you might get ANXIOUS. You are anxious because you have not made any trades and feel like you need to take a trade. If not, it would seem like a waste of time being in front of the screen and you know you wouldn’t want to waste any time which is of course something very precious to you. Being anxious about being in a trade can lead you to take trades that is not worth taking. A trade that doesn’t follow your rules for entry and may not give you a good risk and reward ratio. So, stop being anxious when you are not in a trade because not being in a position is a good position too. Do not feel anxious about not being in the forex market, you sometimes need to understand that being patient is a virtue as a trader and don’t or I would rather say never allow yourself to be pulled in by the market when you don’t have a reason to take a position in the first place.
This ANXIOUSNESS of wanting to be in a trade is even more aggravated when you you see the market moving in a direction which you had anticipated but did not take the trade earlier. This can lead you to want to chase a trade. Again, I would advise you to be smart here. Enetering when the market has moved might lead you to take a trade at a bottom or at a top and that is not good for your account. Do not chase the markets because you feel anxious. There is always another opportunity around the corner and you should be waiting for the market to correct or retrace if you would want to join the trend. Taking a trade after a major move might not just be a good idea .
Lets look at another context which could lead to another type of emotion arising.
When you are in a profitable position context.
Lets say that you have entered a trade and the trade is in profit. Most of us, when we are making money can succumb to GREED. Greed can lead us to hold on to longer to our trades than we initially plan to. It can lead us to take larger lot sizes and also to push us to take more trades than we should. Do not allow Greed to take over your decision making process. If it does, you will just be putting yourself at the market’s mercy. We don’t want to be in such a situation. Manage your trades well and if you need to exit as per your plan, then exit the trade and enjoy the profits that you have gained. If you ever decide that you would like to let the profit run, I would suggest that you take out half your position and take the profits. Let the other half of the position run and do put in a protective stop. This would allow you to risk the market’s money and your trade would in other words be “risk free”. You are not risking your own capital.
Another emotion that can set in when you are in a profitable position is PANIC. A trader can get into a panic state when he or she takes out a profitable or a losing trade after hearing about a latest news, hearing their friends tell them a story about the market which frightens them or best still, after reading an article on the web. This form of panic is self induced and triggered after receiving an information input. In a panic state, a trader would usually not be able to make good decisions and if the emotion pushes him to go against his own trading system, its all made worst.
When you have been losing a few trades in a row.
If you have been losing a few trades in a row, I am really sure that you would have experienced a confidence hit too. During this time, you would be feeling fearful. Taking the next trade would be so difficult to you that at other times when you would have taken a trade based on your entry strategy, this emotion would have kept you out. Worst is when you see that the trade, that if you had taken it would have been a profitable one. Its a double whammy for some but for others and I would like you to follow this group of people, would see this as a validation of their trading strategy and go on to take the next trade with more confidence. FEAR is one of our most basic instinct. To flee from a situation which we deem as having little to no control over. In a situation such as this, it would be best for you to lower your trading size and slowly increase it back again when you have had a fair number of positive trades to counteract the losing set of trades earlier on.
Some traders do not experience FEAR when they lose a few trades in a row, instead they experience ANGER. This is also the emotion that makes you want to hold on longer to your losses than you usually do. Sometimes, anger will also lead us to blame the market, blame the birds for chirping too loud, blame the cat for meowing, etc. When you start blaming everything else besides yourself for the trade, things get a bit off tangent and you might not be able to think straight. In this context, we would usually be happier being right than anything else and this is very dangerous as the market doesn’t know you and it has no feelings and an angry person with a losing trade with no stop loss could just have his account being wiped clean. It can also lead to desperation and forex trading becomes a gamble, a win all or lose all kinda situation. It could lead you to an abyss of no return. So please, turn back if you see yourself going this direction.
I hope that I have helped you in identifying the emotions that most traders go through when they trade. Emotions are interactionist in nature, meaning it arises out of the triggers that is sent by the environment and in this case the trading environment and the positions that we are in. A trader’s job is to manage his capital and managing his capital the best he can so that at the end of it, he still has some profits to sustain his life. As such, do identify the context that you are in first and be ready for the emotions that come when you are in that context. By understanding the context based aspect of trading and its relationship to the emotions that arise, you as a trader can be better prepared.
All the best to your trading.
Chief Currency Strategist