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How Do Emotions Affect Your Trading?

Emotion trading affects all traders, from beginners, to intermediate and even professional traders. If you’re just starting in Forex, you might thing this is rubbish but I bet you’ll understand what I mean in a couple of months…

So, how can emotions affect you?
Emotions can “attack” you in very different ways and unlike you might think, they also “attack” you when you’re winning… Let’s take one step at the time…

1) When you close a trade that ended up being a loss, you tend to condemn and asking yourself why did it happen to you. But the real question should be “what could you have done (if anything) to avoid it and what can I do in the future to prevent this”. The first thought shows that you’re being dominated by your emotions, thinking that all bad things happen to you, when in fact, all traders have their own losses. The key is to know how to deal with them the right way. This is what the thought you should be having shows. It says that you clearly accept the responsibility of having made a bad trade but it goes further: it proposes to do something different in the future to prevent these kind of bad trades again.

2) What usually affects traders more is when they’re having a losing streak (several losing trades in a row). Traders’ feelings when this happens are usually even stronger and might take you to fear the market itself (fear of entering in a trade and losing again), or to eager because you just want to recover every single penny the market “stole” you. Both feelings are highly destructive and you may end up by losing even more money… The best thing to do here is to stop. Just stop. Take some days or even weeks off the market, put your head in the right place and only come back when you feel you’re with the right mindset to overcome this difficulty.

3) As I told you in the beginning of this email, emotions can also affect you when you’re winning. If you’re on a winning streak (several winning trades in a row), you’ll probably feel that “you’re the king of the world”, that nobody can beat you, including the market. This situation leads to over-confidence, which turns into not looking at your system with the same attention, not following all the rules, trying to get even more profits, risking more than you should, and eventually will lead to a severe loss.

There isn’t any secret formula to keep emotions out of the game. It’s rather something that you learn from experience. What I do know is that emotions tend to influence most traders and they tend to make bad decisions.

What you can do when you’re losing is to acknowledge that you were wrong and accept the responsibility. Don’t blame the market. See what you did wrong (misinterpret anything, didn’t follow the exact rules, put too much money in a single trade), and move on. Keep focused on your long-term target and you should be able to succeed!

Jon Parker
Forex MegaPips

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