The trading emotions that come with forex
Let’s look deeper into what trading is. Trading in its simplest form is analogous to gambling in many ways.
You put up some money, buy an asset, and then try to sell the asset at either more than you bought it or at least for a profit of some sort.
What are these emotions?
The critical factor that distinguishes trading from gambling lies within risk management. To become a successful trader, one must control greed and fear, two emotions influencing every decision you make when trading.
Greed and fear play a significant role in market sentiment. When prices are climbing – whether or not they show signs of slowing down – greed may start to set in as traders get excited about near-infinite gains.
On the other hand, fear may creep into traders when prices decline, and they see all their money disappearing before their very eyes.
We hate to lose more than we like to win. The fact of the matter is most people (generally) do not trade to make less money; they trade to make more money.
It can be explained by understanding how human brains process pain versus pleasure.
As you can imagine, losing or failing at something produces much greater pain/anxiety. When traders are experiencing these negative emotions, their judgement suffers and becomes clouded.
Trading is an art that many have tried to master with varying success. It takes years of work and effort to call yourself a good trader, let alone the best in the industry.
Along this journey, traders are faced with many challenges; they deal with people on different sides of the market – both buyers and sellers.
They attempt to make accurate predictions about how prices will move over time, often having their ideas challenged by others who feel differently about what may happen next.
As such, emotions can run high when trading begins due to the volatility of stock markets worldwide.
It’s important to understand that emotions are typical when it comes to trading, even though you may want to push them out of your mind for good.
However, if your goal is to improve as a trader over time, you must learn how to control this part of your brain or risk losing money in the long run.
The following are different types of trading emotions you may experience while learning how to trade:
One emotion common for new traders is fear. They might have heard stories about people who went broke after trading or don’t know what to expect from a typical day at the stock market.
As a result, fears can create a significant mental block and prevent an individual from making good decisions in their trades.
Related to fear is hope. A new trader might have unrealistic expectations about how much money they’ll make when they first start trading, which will lead them to take too many risks in future trades.
In addition, their losses may cut into the profits made by other traders with more experience under their belts. When this happens, it’s easy for frustrated traders to lash out against others doing better than them.
One of the most common emotions of trading is envy. When one trader makes more money than another, it’s easy to get upset when they seem to do everything better than you in your day-to-day trading activities.
Some people may go so far as trying to copy their peers to catch up and outdo those who are performing better than them.
Finally, there’s excitement. New traders tend to be thrilled with the idea of having a lot of money just waiting for them at their fingertips.
Frequently, new traders will overtrade due to this feeling and place additional bets against other traders on the market without doing their due diligence on why they should or shouldn’t take that risk.
It can lead inexperienced traders down a dark path that will likely end in them losing all their money.
There are many other examples of emotions traders face while learning how to trade, but the above are common enough to mention here.
Understanding these different types of trading emotions can go a long way towards helping you avoid bad trades in the future, so remember the above whenever you feel yourself becoming too emotionally attached to your current position in the market.