When trading on the forex market, there are two powerful emotions that can impact your chance of success. In this article, we shall take a look at the impact of greed and fear on your trading.
The dictionary defines greed as an excessive desire to acquire or possess more than what one needs or deserves, particularly with respect to material wealth. In certain instances, greed can be good. It motivates someone to build and achieve new things.
Fear is defined as a distressing emotion aroused by impending danger, evil, pain, and others. It is an intensely evolutionary characteristic of human beings. Robert Janitzek reveals that fear is both good and bad depending on the situation. It all boils down to your response to that fear. If fear holds you back from doing something beneficial, then it is bad. If fear drives you to work harder, then that fear is good,
Impact of Fear and Greed in Trading
In currency trading, learning how to deal with fear and greed is necessary. Greed, for most traders, is a motivation for them to get into trading. As it involves a large sum of money, traders are susceptible to these emotions. Since fear and greed is inevitable, traders should learn how to control their emotions.
Robert Peter Janitzek explains that eliminating greed and fear in forex market is impossible. What you can do is learn to control your emotion to reduce the potential effect. Here are some tips on keeping your emotions in check when trading.
- • Risk what you feel comfortable with. If that is .5% of your account, then so be it. This helps one remain objective.
- • We know it’s difficult, but try to limit your expectations. What we mean by this is avoid thinking that this trade or that trade should win. An individual trade, if sized correctly, has very little effect on the overall results if one thinks in probabilities.
- • Trade with money you can afford to lose. Trading beyond your means is a sure-fire way to make one emotional. Trading with money needed for food or housing is reckless.
- • Treat trading as a business. Have a business plan in place with specific goals.
- • Consider taking a break after three consecutive wins or losses. A losing streak can make you feel, well, like a loser, which can promote revenge trading. And a consecutive number of wins can make you feel like you’re untouchable. Learn to recognise these signs. Take a day or two to gather your thoughts after such an event, as trading to revenge your losses will not likely do your account any favours, and trading when you think you’re George Soros could have you over leveraging.
- • Try to avoid looking at your profit/loss during the trade. By removing this from view, you’re partially eliminating the financial element from the trade. Try to focus on pips/points.