Your Emotions And Forex Trading Don't Mix
The key to making money in the
FOREX market is to avoid emotional decisions and to follow a
carefully thought out Trading strategy that takes the current
FOREX market and history into account. Going with your
emotions or your gut is not the way to Trade the Forex
market. Going with your gut could cost you money. Forex
trading is a highly volatile market where emotions tend to run high.
Emotions can influence your trading decisions, unless you have
a strategy planned in advance, and stick to it, no matter what you
think you're seeing at the moment. The keys to success in
Forex are system, analysis and perseverance.
Most experienced traders will tell
new traders that they need to develop a system — and stick to it no
matter what. Letting your emotions rule your decisions can hurt your
trading in a number of ways.
Your Trading system should
tell you when to buy, what to buy, when to trade and what to trade
for. By sticking to your system you'll maximize your profits. A
system based on technical analysis of market trends is one of
the most potent tools that you can utilize if you're just getting
started in Forex trading.
Many Traders, with years of
experience, continue to use this system to keep the profits rolling
in.
Using a mechanical system will take
the emotion out of your trading, stopping one of the reasons
why people fail. Your system doesn't sway with emotions. It sticks to
a tried and true course. To be effective, your Trading system,
whether you develop your own or copy one created by someone else,
should identify the entry and exit point of all your
trades. In general terms this is as follows:
Under what conditions should you
acquire a currency?
For instance, you may have a buy
order for when a particular currency drops more than 5 pips because
your analysis tells you that that's likely to be as low as it goes.
When should you trade one
currency for another and for which one?
There are two reasons we need to exit
Trades, to maximize our profits, or minimize our loss. That
means we have a set stop-loss order and a set take-profit
order at which point you cash out your trade.
What factors will I allow to change
that decision?
While the
Forex Markets moves in
predictable patterns, there are always individual variations of a
trend within those
patterns. If you've taken those variations into account, it will be
far easier to decide when a factor really does make a difference, and
when it's just your emotions taking over again.
How will you trade out of a
currency?
Your exit strategy may be as simple
as a stop-loss order when my loss hits 5% or a take-profit order when
I make 40% profit'.
Another key is perseverance. Analysis
of trends in the market will show you that the market moves in dips
and spurts within overall patterns that are predictable. No trend
ever moves smoothly in an up or down line — there are always
periods of time when values suddenly shot up or down based on some
outside factor.
These are the times when emotion will hurt our Trading,
and our account balance. When a currency that
you're holding takes a sudden dip south, it's tempting to panic into
trading, cut your losses and run even if your system tells you to
hold on. On the other hand, it's easy to catch a rising trade, it
starts increasing in value and we rush to buy more of the same. These
are exactly the times to rely most heavily on our Trading
system It will tell us exactly when to trade for maximum profit.
If we can control our emotions and
stick to the system we have in place we will maximize our profits and
all should be sound with with our Trading account, keeping loss
very small.
