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Do Emotions Have a Place In Forex Trading?

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Forex trading and investing are inherently analytical activities. Successful traders are usually ones who are able to stick to a plan and who will not get distracted, greedy or nervous and make mistakes when they are trading. However, that doesn’t mean that all emotions are a bad thing. It is perfectly normal to feel some fear when you make a big investment and if you suppress every emotion you may lose out on some of the valuable human traits such as intuition and an understanding of how your fellow humans are likely to act in unusual situations.

Controlling Your Emotions

It’s true that some emotions can be a bad influence in trading. If you allow “hope” or “faith” to persuade you to stick with a bad position that your trading system or signals says that you should drop, then you may as well not be following a system. If you hold a strong position and refuse to let go because you don’t want to lose out on more profits, but every analysis points to a downturn being on the way, then you are letting greed take over. Successful traders never get greedy.

Most novice traders do not have enough knowledge to justify going against the signals they subscribe to, or ignoring generally sound technical analysis. If you’re playing the markets for the first time, don’t try to go off on your own and get rich based on a gut feeling or a hot tip. Stick to the basics and try your hot tips on a demo account for a while. Only once you have some real world experience with forex trading via realistic demo accounts (ones that use the same pips and spreads as their live accounts) should you think about bucking the trend in your live forex trading.

Examining Your Trades

Before you make any trades based on a “gut feeling”, spend an extra moment or two trying to figure out why you feel the way you do. If the technical analysis says that there will be resistance at a certain point, but you’re convinced that the currency will bust through that point, try to work out why. Did you see something on the news that you’re convinced will escalate into a bigger story? Do the forex fundamentals point to something unusual (such as the Fed’s recent backtrack over Quantitative Easing)? If you can justify your thoughts, you aren’t acting emotionally, you are simply analysing data and coming to a different decision.

 

 

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