-------------------------------------------------------
Business : You Must Understanding Emotions In Forex: The Emotional Cycle In A Trader's Mind
As a Forex trader, you are presented with the opportunity to make a decision on what position to take on the market. It can be a ‘Buy’ position or a ‘Sell’ position. You are not absolutely sure of the end result of your trade position but obviously it will be a profit or loss. You are looking at the chart and price is moving in a certain predominant direction. Whether you have done pre-studies of the market or you haven’t, you want to take a position on the market from your chart. Let us stop at this point and zoom into two dominant aspects of your mind: The logic or technical aspect and the emotional aspect.
The logic aspect of a trader’s mind
This is the capability of your mind to make decisions on probabilities present at hand. Your mind weighs the situation against all viable options and solutions and makes a judgment on the right direction to take. A sober decision is mainly attributed to the logical mind. However, the process of making a decision in mind will always be inspired by traces of emotions hence we need zoom into the emotional aspect of the mind.
The emotional aspect of a trader’s mind
Emotions are an integral part of the decision-making process in mind. As a trader, any expression by price on chart generates a wide range of impressions which trigger emotions in your mind. These emotions can be profiled in five stages starting from the first in occurrence to the last one: Excitement, Greed, Hope and finally Regret.
Excitement
It all starts when you are looking at the price chart and notice an opportunity to be seized. You begin feeling excited about the price movement that seems so promising. Without careful observation you dive into the market. Price continues moving in your anticipated direction and your trade keeps incrementing profits as your account equity grows.
Greed
The trend has been positive for the last few minutes and you now feel like a genius super trader. You probably feel like adding on yet another new trade. This is a strong sign of greed but you don’t notice it. You convince yourself of how your next trade will surely make profits hence you not only add a new trade, but you double or triple the lot sizes. Still everything goes positive and maybe even more so. To this point you have no stop loss orders on both trades as you strongly believe the trend is safe for you. If any stop loss orders are present, they are a hundred pips away that your margin will be significantly reduced should they get hit.
Worry
You become so relaxed on follow-ups on your trades and you are probably away from your trading screen. You come back suddenly only to notice the market is likely taking a turn. The market volatility drops and price seems to experience a slight pullback. This sends butterflies in your stomach but you convince yourself as usual, that price will recover from the pullback and the trend will continue.
Hope
A few minutes pass you by while price is still in reversal and the pullback just gets bigger and bigger. It gets to a point where your trades are at break-even point. Your earlier profits have been reclaimed and your running trades almost turn negative. Fingers crossed and feet experiencing a cold feel, you do not know what to do. All over sudden there is a big loss on your running trades that you cannot exit the market since you do not want to accept such a loss. You strongly hope price will make a turn and recover your running losses and continue with the previous trend. Unfortunately it does not happen. Worse still, the pullback has actually become the new trend and chances of loss recovery are close to zero.
Regret
Finally you give up on any hopes of price ever making a turn to the previous direction. Your trades have all gone soar and the loss count is unbearable. All stop loss orders have been hit or you have manually closed all your trades at huge losses. Surely you regret for having traded the market and the experience is so depressing.
This is the roller-coaster cycle of emotions that a losing trader experiences when trading the Forex market. If you are a new trader and you haven’t been learning and practicing Forex yet, but begin by investing real money hoping to trade for yourself, you better brace yourself for such terrifying experiences. However, with enough practice and learning, you will device a trading strategy, a risk management plan and an effective trading plan. In addition, you will learn your strengths in trading Forex. All these measures will save you from these five stages of emotional cycle experienced by inexperienced trader.