Hey,
Whenever I hear or read about how 95% of forex traders lose money on the market two words spring to mind: Fear and Greed. I consider these two, all too human, emotions to be the worst enemies of any trader, capable of wreaking havoc in any account, no matter what size or how experienced.
Why do fear and greed play such a big role in the psychology of traders? The reason is Money.
After all, Money is the reason why anyone gets into trading financial markets in the first place. It is the (achievable) goal of making more money with as little work as possible. This is Greed, because you wish to make more and more over and over again.
The problem is that there also is an inherent risk in trading forex. The risk of losing money exists every time you enter into a trade. It can go your way (you make money) or the opposite way (you lose money).
Losing money is something no-one wants or enjoys. In fact, it can be downright scary as money buys us food, keeps a roof over our head and contributes to the overall sense of safety for ourselves and our family. This is where Fear comes in, the fear of losing money.
The fact that these emotions exist is not a problem in itself. The problem is that they are capable of playing with a trader's decision making process by eliminating logic and common sense. They
can cause irrational trading decisions.
Here are two examples of how Fear and Greed can interfere with your decision making:
- Example 1
Let's say you're into a trade and it goes against you. You set a Stop Loss as the trading strategy recommended. But now you are having second thoughts. You don't want to admit this trade may close at a loss because you are Greedy.
You want this trade to make money. You act irrationally and move the Stop Loss, giving the trade more room to go against you.
Finally, you end up closing the position at an even bigger loss than you should have suffered. Why? Greed.
- Example 2
On the other hand, let's say you are into a position and it's going in your favour. It is now a small profit. You've already set a higher Target Profit so you leave the trade to run further.
However, now Fear grips you and you begin fearing that unless you take this profit while it's still there, you will end up losing it.
This causes you to close the trade at a small profit and you end up missing out on a bigger profit as the trade could have earned more for you.
To be a successful forex trader you have to learn to control your emotions. Until you do that, you will never join the 5% of successful traders.
In the next email I will give you the top six secrets to mastering fear and greed, and turning them to your advantage.
In the meantime, why don't you join me on Twitter?
http://twitter.com/Alberto_Pau
Yours,
Alberto
