Being emotional is part of being a human. But getting emotional when you are trading in forex market might not be such a good thing. You can’t avoid emotions, but what you can do is not let them influence your decision-making abilities. As a result, it is important that you understand what type of emotions you should watch out for while trading in the forex market. If you want to do forex trading in Sri Lanka , managing your emotions in a refined way would decide your ability to earn profit or loss in the forex market. The best way to approach your emotional dilemma is to understand your nature as a trader, find your strengths and weaknesses, and pick a trading method that will suit your psychology and financial standing.
Here are some of the most common emotions people feel when trading in the forex market:
Urge to over-trade in Forex market
A large number of forex traders, both novice and experienced, go through a temptation of over-trading. They make plans to overcome this temptation, which can be tricky at times. By formulating a well-defined management plan of action, you can get over the urge of overtrading and stay in the market in the long run while also maintaining and improving your trading position.
Fear is a part of trading in forex market where prices move up and down, and where there is no guarantee that you will not lose what you have earned, a few bad moves, and all might get lost. The fear of reaching a position where a trader might have to suffer losses can be damaging and the trader might also lose some of the very profitable opportunities out of fear.
Winning a few hefty trade deals can make a trader greedy for more and he or she might become less conscious or overconfident when trading in the forex market. Try to avoid being over greedy. Greed might work for you at times, but it can also make you reckless and you might start making too many impulsive decisions that might be harmful for your overall trading position. Greed can increase the risks and also encourage your gambling tendencies.
Hope is like a double-edged sword. It is good for life and trading, but having too much hope can be as damaging as too much greed and fear. If you have placed an order on the losing trade, you might be hoping that the loss will turn into profit in future. As a result, you may miss all the signs that the trade will go on the path of losses and continue with that trade. You might also enter into a bigger trade hoping that it will compensate all your previous losses, which might prove to be very risky. So be careful what you wish for or to be more specific, what you hope for.
Excitement and anxiousness
Getting excited and anxious is not unusual when trading in the forex market. When you are very anxious or excited while trading, it is often an indicator that you are working against the trading rules and expectations, or you have gotten into a deal where you are wondering whether it was a right or bad move, or you are gambling a high amount. The best way to handle this situation is to write down your feelings and figure out the reasons behind why you are anxious or excited and plan accordingly.
Retaliation or Revenge
Sometimes while trading in the forex market, you lose a great deal or face losses because of the actions of an opponent or another trader. You might feel very angry at this and in order to prove yourself better than your rival, you might want to retaliate against him or her. This can lead to a very bad example of risk management. Because results of revenge can be something you might not be ready to handle and it might have devastating effects on your trading and overall financial status. Decisions you will take in the throes of revenge might turn out to be bad business decisions.
How To Handle Your Emotions When Trading In Forex Market?
Mentioned below are a few tips on how to manage your emotions so that they won’t ruin your trading performance:
- Develop an effective trading plan. Good planning will help you bring down the level of risks involved in your trading methods and also help you get over your emotional outbursts without affecting your trading position and goodwill.
- After you have placed a trade order, do not keep going back again and again to keep track of it. Price movements might tempt you to make changes in your trade circumstances like you may want to move the stop loss or take profit level, which might not be good for your trading position. So simply place the order and then move away.
- After making profits or losses on a few successive trades, it is better to take a respite from the things. With too many profit deals you might become overconfident or with losses, you might make reckless or highly risky moves to make up for all the losses. Taking a break will help you take a look at everything you have done in your forex trading business and reflect on what you did right and what you did wrong.
- When you enter into a forex trading market, you get to learn lots of things and theories about how to trade in forex market. There are tried and tested methods of trading that are used by many forex traders across the world and with good results. You can use those methods when trading, instead of doing something that will give you doubts about your trading system. Effective and efficient trading techniques will keep you calm and help you control and manage your emotions.
To manage your emotions like fear, hope, greed, etc. you can start maintaining a forex journal. To know more about how to do it, you can refer to the article ‘ What is a Forex Trading Journal and Why I should use a forex trading journal ? ’
Also if you want to to know how to trade forex in Sri Lanka, read ‘ Introduction to Forex Trading ’.