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Few experiences can make a person feel their emotions more intensely than trading an account with their own money in the forex market. Trading can make a person feel on top of the world when making profits but severely depressed when watching their trading account begin to evaporate into thin air.
Trading as a Business
Anyone who has ever run a business will tell you that emotions and business do not mix well. Trading the forex market has many similarities to running a business, mainly because people who participate in trading do so to make money, just like most people aim to do with their businesses.
Nevertheless, because of the immediacy of gains and losses in the forex market, people tend to get emotional much more easily than in other types of businesses. Even with the best laid plans, people often tend to break the rules when emotions take over, even if they have made those rules themselves.
Emotions Experienced When Trading
- Fear – one of the all-time market drivers. Nobody trading in the market likes to lose money and fear of losing can have repercussions on both individual traders and the market in general as fear will make markets drop faster and further than any other market emotion. Fear also impedes traders from taking action when necessary and leaves some traders holding losing positions much longer than appropriate, magnifying losses.
- Greed – Another major factor driving the markets. Many people do not even realize how greedy they have been conditioned by society and are surprised once they start trading. Greed can be very dangerous to a trader. An old market saying goes “bulls and bears make money but pigs get slaughtered.”
- Hope – An important emotion that can affect traders’ behavior considerably. Hope is generally felt after a trader has taken a trade which subsequently goes against them. In this case, the trader often hopes the market will turn around and make the losing trade profitable. Unfortunately, hope has no basis in reality and can only impair the trader from trading effectively and taking losses promptly to protect their portfolio. Fear of losing more money is a more appropriate emotion in this instance, and the trader should give up hope and just liquidate the position according to their plan.
- Excitment – Trading the forex market can be exciting, especially when riding on a wave of winning trades. Nevertheless, such excitement can lead to a number of trading pitfalls that include overtrading and carelessness. Many such overly-excited traders have been surprised to find their account with a net loss at the end of a busy trading day after commissions and spreads have eaten away any profits.
- Depression – An emotion that a trader often feels after a string of losing trades, especially if the losses resulted from them not being disciplined. An often-crippling emotion when trading, depression finds better expressed outside of the trading arena. Most traders stop trading if they find it makes them depressed.
- Anger – A common emotion experienced when a trader fails to take a profit and ends up running the trade into a loss. Also seen when a trader makes a losing trade and fails to put in a stop-loss, thus digging themselves deeper into the hole.
Basically, emotional reactions really have their proper place within relationships and not when it comes to trading the forex market. Remember, if trading is going to be your business, you need to treat it like one.
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