Fear and greed are a Forex traders worst enemy. Knowing how to control fear and greed in Forex trading will help you to become a better trader.
The key to making money in the Forex markets is to trade logically without emotion, and if you can remove fear and greed from your trading and trade logically, you will make more money from your trading activities.
What is fear and greed?
Fear and greed are pretty simple concepts to understand, and they are intertwined in the majority of Forex traders psyche. Everyone gets into Forex trading to make money, that is the sole objective of trading, but the fact is the majority of Forex traders lose money in the markets. Not being able to control fear and greed will cause traders to trade emotionally and make irrational trading decisions, which will ultimately lose them money in the markets.
How to control fear in Forex trading.
There are many types of fear in Forex trading, but the fear of losing money is probably the biggest one. Depending on your personality type, some traders will be more prone to fear than others. If you are a trader that has a big fear of losing money you can mitigate that fear in 3 ways.
1. Reduce your lot size. If you are trading with a lot size that you are not comfortable with your fear is greater, and your chances of making an emotional irrational decision are greater if you are trading this way.
2. Set a stop loss on every trade. Knowing how much you are prepared to lose on every trade will help you overcome fear. No one wants to lose money in the markets, but if you know your potential loss in advance, and you are comfortable with that, you will not be trading emotionally and making irrational decisions.
3. Understand the market. This is the biggest fear of all in my opinion. And the hardest one to overcome. Lack of market knowledge is the major reason why traders fail, and is the difference between the 5 and the 95%. Many traders think they understand what they are doing, but the truth is they don’t. You have to fully understand what is going on in the Forex market to become a successful Forex trader, and this understanding will greatly reduce your fear.
Fear of the unknown is the hardest fear to overcome. If you think about other types of fear you may have experienced in the past, this will give you an idea of how important knowledge is, in overcoming fear.
Many people may have had a fear of exams at school, because they wanted to do well, but they did not fully understand the subject.
Some people may have had a fear of driving a car, because of a lack of understanding, but now they drive successfully every day.
When you started your first job you may have had a fear of going to work, because you were not familiar with the roles expected of you, but now you go to work every day without fear.
Can you see a pattern here? The pattern is knowledge. Knowledge lessens the fear of all these fearful situations, and Forex trading is exactly the same. Having the knowledge needed to enable you to trade with confidence, will take away the majority of your fear.
How to control greed in Forex trading.
As we have established greed can also play a big part in the success or failure of a Forex trader. There are various types of greed that will attribute to your failure as a trader, but the main one is trying to make money on every market move. Trying to make money from every move in the market will cause you to chase after market moves, and over trade, and if you are chasing the market and over trading you are trading emotionally, and you will lose money. Here are a few tips you can use to help you overcome greed.
1. Make pips not money. Its not how much money you make, its how many pips you make that counts. If you are trading 50 lots per pip you can make £3000 per week from just 10 pips. So don’t get greedy and chase after the big money every week, just concentrate on making pips. When you are consistently making pips, week in week out, then you can increase your lot size to make the big money.
2. Be realistic with your expectations. You have to learn to accept that you cannot make money from every move in the market. You have to be satisfied with the pips you do make, and not get frustrated by the pips you miss out on. Getting frustrated by missing out on trades, will cause you to trade emotionally, and chase after those missed pips.
3. Learn to trade. Making money is a by product of trading successfully, but the majority of traders will try to make money first, and then learn to trade, after they have lost a lot of money. Which does not make a great deal of sense, but that’s what happens. The majority of traders that come to me for training and mentoring, have already lost a lot of money in the markets, before they decide to employ me to teach them how to trade.
Summary. Knowing how to control fear and greed in Forex trading will help you to become a better trader, but the biggest obstacle to overcoming fear and greed is a lack of knowledge. Knowledge will give you the understanding you need, to enable you to trade without fear and greed, and consistently make money from Forex trading. Not knowing how to trade correctly, and chasing after the big money, will cause you to trade emotionally, and ultimately lose you money. Trading is not easy, but understanding the market will help you to control your fear and greed, and make you a profitable trader.
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