An Emotionally Controlled Forex System
Learning about the correct techniques to analyse and trade on the forex market is important. However, it is also important to know how to control your emotions. When you create your forex system you should consider what emotions you may face when trading and what can be done to control them. It is only through controlling your emotions that you will be able to completely avoid emotional trading.
Fear in Your Forex System
The emotion that hits most traders the hardest is fear. The main cause of fear when you are trading is the possibility of losing your money. The problem with feeling fear about this is that you are going to lose on a trade. All traders will lose when they trade and there is sometimes nothing that could have been done to stop this loss. There are three options open to you when it comes to controlling your fear when trading.
The first option is to simply accept that you will lose on some trades. This is often easier to do when you are using capital that you can afford to lose. When you use this option you have to ensure that when you set up your forex system that you only use capital you could lose. Fear is only increased when you use capital that you cannot actually afford to lose.
The second option open to you is to reduce the lot sizes you are using. This lowers the feelings of fear by lowering the amount you stand to lose. While this does lower the fear levels it also decreases the profit you could be making. As all traders are looking to make a profit on the market decreasing your profits is viewed as counter-productive.
The third option available to you is to complete more trade. This works in an odd way by alleviating fear through the idea that you could make money through other trades. This is the riskiest of the options because more trades increase your risk exposure and can easily lead to overtrading. You should only use this option as a last resort if the other two methods do not work.
Controlling Your Greed
Greed is an emotion that is often considered to be human nature. Regardless of this you need to learn to control any feelings of greed because they often lead to more losses than gains. The most common time that traders feel greed is when they have a profitable trade. The temptation of leaving the position open to make more profits is often too great. The problem is that you may hold the position for too long and your winning trade starts to lose some of the profits you have made. There are two options available for controlling your greed.
The first option is to have set exit points in your forex system that you never divert from. This is often viewed as the best way of controlling greed. However, there are a lot of traders that find this rigidity stifling and cannot trade with this. If you are one of these people then the second option might be more appealing.
The second option available to traders is the use of a trailing stop. This option does have the possibility of losing some profits. However, the amount of profits that you lose is less that you would if you hold onto the position with the original stop loss points still set.