In Forex Trading You Should Never Get Emotional About A Trade

by Donald Saunders - Date: 2007-03-21 - Word Count: 513 Share This!

If there is one thing that will affect your Forex trading more than anything else it is emotion. In the film Wall Street, Michael Douglas told Martin Sheen not to get emotional about a stock and, while that it good advice for anyone trading in the stock market, it is absolutely crucial advice for someone working in the foreign exchange markets.

It is very easy to find yourself getting caught up in a trade. You enter a trade because you have a 'good feeling' about it and, even when the market starts moving against you, you hang in there because you 'know it's going to turn around'. Now sometimes of course it will but, more often than not, it won't.

The problem is that you've become attached to this particular trade and your decision to keep your position open is being made on the basis of emotion and because, having attached yourself to the trade, you see closing your position as an admission that you are wrong.

Trading in the Forex market must be driven by the market indicators if you are to be successful and your trading decisions should be based on what the indictors are telling you and not how you feel. That's not to say that as a trader you should operate rather like a robot or a machine, but it does mean that you shouldn't let your heart rule your head.

You may for example have a particular emotional attachment to a particular currency and conduct the majority of your trading in that currency. That's fine. You might even have a feeling that the time is right to buy a particular currency. That's fine too. Where you will make a mistake however is to enter a trade on the basis of your feeling.

If you have a hunch then check it out and study the market numbers. If they tell you that the time is right to open a trade then do so but, if they tell you that the market conditions are not favorably, no matter how you feel about it, you should stay out of the market.

Similarly, if having entered a trade the indicators tell you that the market is moving against you and that you should get out, then do just that. Your heart may well be telling you to 'hang in there' but your heart doesn't pay your bills - the market does.

It's a simple fact that in Forex trading you win some and you lose some and that's simply the way the market works. It's not a question of being right or wrong. The market takes twists and turns which catch out even the most experienced traders and the secret is simply to accept that you will lose in a particular trade but to get out as quickly as you can to minimize that loss and move on to your next trade and, hopefully, a nice profit.

If you follow the indicators you'll minimize your loses and maximize your profits but, if you follow your heart, you'll minimize your profits and maximize your loses.

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