The 8 Destructive Trading Emotions
Posted On April 13, 2021
The 8 Destructive Trading Emotions
Culprit no.1: Fear
There are two types of fear in forex trading —Fear of missing out (FOMO) and fear of giving back profits.
According to Wikipedia, the most widely used online encyclopedia, with unverified information, FOMO is…
A social anxiety stemmed from the belief that others might be having fun while the person experiencing the anxiety is not present. It is characterized by a desire to stay continually connected with what others are doing.
F*ck it. You’re simply worried about missing out on a good trade, that’s it.
Because of the worry, you jump into the trade unplanned. You don’t care if the potential reward can justify the risk you take. You don’t bother to wait for a better entry price.
The EUR/USD is going up! I just want to get a piece of the pie!
Now! Now! Now!
Then you realise that the pie is expired.
Fear of giving back profits. According to Wikipedia…Ok, ok! Enough.
You do know the forex market doesn’t move in a straight line, right? It moves in a zig-zag way. It ebbs and flows constantly.
When the market moves in your direction, you close your trade early out of the fear of giving back the profits on hand. So you end up taking only 2% from the 20% gain.
Listen. It is absolutely normal for the market to pull back a little after a long run.
You will have to take a break after a 20km marathon, won’t you? Yet you feel so insecure about that break you give up on the run. What?!
Culprit no.2: Greed
“Bulls make money, bears make money, pigs get slaughtered.”
This saying is not from Wikipedia but the famous investment guru, Jim Cramer.
You’re certainly going to lose your hard-earned money if you’re being a greedy pig in the market. You know what? I’m surprised most forex traders are not conscious of their greediness while they’re being so.
Expecting to make $50 a week, and that’s $12,500 in a year. On a $100 account.
Adding to a position because the market has moved in your favour. By 0.1%.
Holding tight onto a position to let profit run. That has been running for 200%.
All these actions are born out of greed, my man!
Culprit no.3: Hope
“I’m sure it will come back soon. I’m pretty sure.”
Sounds familiar? Have you ever had such a thought after entering a trade? You’re definitely not alone.
Hope gives you a false sense of confidence. It makes you think that a bad trade is going to turn good very soon, if you just hold onto it a little longer.
The reality is, a bad trade often turns worse.
Hope is not a forex trading strategy itself. In fact, I’d be happy to associate hope with gamble which often does not produce a happy ending.
When you’re in a bad trade, you’re falling in a hole. When you hope it will come back and add more positions to it, you’re digging the hole deeper.
Culprit no.4: Excitement
Since when excitement becomes a bad thing? When it’s in forex trading.
Imagine this. You won 10 trades in a row in 2 days, and you profited $10,000. That’s never happened to you before, excited huh?
What are you going to do next?
You’re going to bet big on the trade trade! The feeling of euphoria runs over your head, and you start to become overconfident and think that everything you do in the market will turn to gold.
You know the ending better than me.
Excitement can do a lot of damage to your forex account. You forget to keep your feet grounded in reality because of the feeling of excitement.
Culprit no.5: Anxiety
Ever been afraid to pull the trigger on the trade, or felt afraid to trade altogether?
Trading anxiety, it’s called.
Anxiety often affects new forex traders when they start trading real money for the first time.
Seeing the trades losing on paper, they start to become so anxious they can’t sleep well at night. They check their MT4 constantly until the loss is actually realised.
You know what? If you feel anxious about any trade taken, you’re probably too loose on your risk management.
If one trade is going to cost a trader his sleep because it may cost him his entire account, you can imagine how big his position is on that trade.
Culprit no.6: Frustration
The next action comes after frustration is revenge.
Humans are competitive by nature, and it’s precisely this characteristic that makes us vulnerable to being extremely frustrated with losing trades.
We don’t like to lose, particularly our hard-earned money.
So when the forex market takes away a substantial amount from your account, you become pissed off instantly. How dare it!
You reverse your position and double it to revenge your loss.
And the loss snowballs eventually.
Culprit no.7: Boredom
This may sound counterintuitive but it’s a fact: Good trading is boring.
Why? You ask.
Good trading involves a lot of patience. Think about it, we’re waiting on the sidelines most of the time for high probability setups to show up, for the trades hit our profit target. It could take up weeks.
As a good forex trader, we follow our trading plan and execute on the very same rules day in day out, without any excitement.
Yes, good trading is this dull and boring!
However, when you’re bored, you lose interest in the immediate experience. Your mind doesn’t feel engaged, and it starts to demand more novelty and more stimulation.
You buy into thoughts like “This is so boring. I need to have something happen, now!” You start to take trades that you shouldn’t be taking.
Boredom trades seldom work.
Culprit no.8: Regret
There are two types of regret that plague a typical forex trader:
The first one is regretting that you actually followed your trading plan. And the second one is regretting that you fail to follow your trading plan.
I may seem like I’m contradicting myself, let me explain.
You follow your plan to enter only when the EUR/GBP makes a pullback in order to get a better entry price. However, not only the pair didn’t pull back, it actually went as you had initially predicted by 200 pips. Your plan failed you and you regretted to follow it.
Let’s consider another scenario.
A $100 loss on any single trade is the maximum you can afford, and it’s clearly stated on your trading plan. However, you think the GBP/USD is going to come back your way soon, you’re not cutting it though the paper loss has compounded to $150. Guess what? It never came back and your account burst! You failed your plan and you regretted not following it.
You feel like shit in both scenarios.
Now, the question comes.
How do you kick these destructive emotions out of your trading? The answer is, you cannot.
We’re not machines, we’re humans.
The only thing you can do is to manage your emotions. The top tier forex traders in the world are better in keeping their emotions in check than anyone, and that’s how they get into the 1% club.