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Fear and Greed in Forex Trading

April 16, 2012 | Comments: 0 | Views: 141

Fearful Forex trading is when you trade currencies too carefully and fear failure too much. It is usually what Forex traders do when they are starting out and lack confidence. Greedy Forex trading on the other hand, is when you trade currencies greedily and perhaps over-confidently. It is usually what Forex traders do after seeing some success, especially beginners who have gotten lucky early on. Both of these Forex trading emotions are on pretty much on two different sides of the spectrum, however, fear and greed are both undesirable emotions.

It can be difficult to trade coldly without any emotion, but you need to try and find a balance between the two emotions which are fear and greed.

Fear should be best avoided, because it can prevent you from reaching your full potential, once it takes complete control of your trading behaviors. Fearful Forex traders tend to place tight orders with tight stops. This generally causes currency traders to take only small profits, being too safe. This might seem a good idea, but it won't allow you to make any significant profits and you could eventually end up getting bored which can be dangerous.

Greed should absolutely be avoided, because it can cause you to deduce losses that are simply unnecessary. Greed can cause Forex traders to lose their sense of control and place unrealistic orders. When currency traders get greedy, they often place orders that are worth more than what their trading accounts can afford to lose. A general rule of thumb is to not place an order worth more than 2-5% of your total trading account size, but greedy Forex traders can be reckless and place orders that are worth a lot more.

You need to control your risk and trade properly, or you will not last in the Forex market. Greed can be caused by short or even long-term success, mainly in beginners, but also by boredom. Ensure that if you are bored, you stop trading or at least try to diversify (which might involve trading a different currency pair or changing up your Forex trading strategy for example). If you are seeing success, whether it be in the short or long run, ensure that you don't start to get greedy. In order to prevent yourself from getting greedy, you might want to consider setting some goals, so that you can stay focused on making steady progress. Just remember that professional Forex traders never get greedy and never splash out on random trades; they stay both disciplined and consistent, following their Forex trading plans.

In conclusion, fear and greed are two emotions that should be addressed by Forex traders in the market for currencies. They can both be destructive if not controlled, so you should learn to try and trade without fear or greed. Although they are pretty much two opposites, they are both undesirable and you should really try and find a balance between the two (you don't want to be too cautious when trading currencies, but at the same time you don't want to be too confident either).

How Forex Trading Works is a resourceful website that serves to deliver free, online content relating to Forex trading, to anyone and everyone.

Source: EzineArticles
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