Emotions pt.1

Emotions

There are two fundamental elements that are involved in profiting from forex trading; a good trading model and emotional control. For the person beginning in trading, the need for emotional control is vastly underestimated and the reason for this is due to the nature of emotions. Emotions are instinctive reactions to a specific situation, they are subconscious and therefore irrational. When a person reacts emotionally, they feel that their reaction is absolutely correct and beyond question. The sad reality is that many people lose a lot of money because their emotions are not under control during trading. Currency trading has the awful habit of stirring up feelings that you never knew existed, particularly in the male mind and this section shall go through the variety of emotions that can be felt and analyze them with the intention that the trader can learn to remove them while trading. They are investigated in alphabetical order.

Aggression
Aggression is hostile or violent behaviour and it is a common male attribute. This is rarely mentioned in trading circles, instead revenge is most commonly spoken about. However there are two fundamental differences between revenge and aggression; first, revenge is rooted in pride and although there is an element of pride in aggression, it is more deeply ingrained and natural to the male psyche. Second, revenge is all about punishing somebody for an injury, whereas the focus of aggression is more about survival through violent means. For example, consider a footballer who loses the ball during a game, he naturally becomes aggressive, but does not tend to want revenge. Rather he wants to get the ball back, induced by an instinctive need to survive (i.e win the game) and rarely is he trying to punish the other player.

In the same way, when the graph goes against a speculator, his instinctive reaction is to survive. He perceives that he is losing money, he is being irresponsible and should respond in a more assertive manner so as to regain control and survive. This can lead to two conclusions; first the trader gets out of a trade too early. Second, he starts to make erratic trades with the intention of recouping the money that has been lost previously. Both of these urges need to be controlled. Aggression should be channelled into one direction, following a profitable trading model.

Anxiety
Anxiety is the feeling of worry, nervousness or unease and the trader has plenty of reason to feel this, having placed his own money on the line. Anxiety is inevitable in such contexts and the aim of the speculator is to have it under control. It can lead a person to enter a trade too slowly and rush out too quickly. Consequently, it is important that we minimize this feeling using two tools: First, risk management means that the majority of a person’s money is protected leading to a feeling that they can afford to lose this trade. Second, having a sound method in trading leads to an assurance that a person may lose this trade, but they generally will earn pips.

Boredom
Boredom is impatience based upon the lack of things to do. This is a frustrating irony about currency trading: the person who will prosper in this endeavour needs to be intelligent, but that means that they have a vibrant mind that needs to be active and involved. Many times a graph might end up stationary for an unpredictable amount of time, hours, even days and boredom sets in, leading to a desire to take risks to liven things up a bit. Also people can end up seeing things in the graph that aren’t there. They fail to re-analyze the graphs at regular intervals. Somehow, the speculator needs to occupy his mind with other things while watching the graph. Another possibility is that the trader has entered a trade due to the presence of all the right signals, but then the graph either doesn’t move, or moves against him. This leads to a delay in the right outcome and the speculator then has to wait until the correct result comes to fruition. After having set up all the necessary pieces of information, he needs to prepare to buy/sell if certain movements take place and while waiting, he needs to find something else to occupy his mind while watching the graph. Personally, I read all relevant market news and then get on to writing this web page. If there is going to be a delay in exiting the market, it is probably better that you place a stop on the trade and walk away.

Caution
Caution is taking care to avoid danger or mistakes and one would think that this is a good quality to adopt and in many ways it is. It is good to be aware that you can lose your money and so make tentative steps when trading. However there is a caution that can lead to loss. Suppose you have an entry point to start trading and when that point arrives you say to yourself, ‘I’ll just wait a minute to see what happens.’ The graph continues going in the right direction and so you then end up rushing in and your stop and limits are now all wrong because you were too cautious. An entry point is there for good reason… you are supposed to enter at that point! To not enter at that point is to challenge the model and that will probably lead to failure.

Excitement
Excitement is the feeling of enthusiasm, eagerness and when that graph shoots in your favour and you see your trading account rocket in value, the initial tension becomes released and elation takes over. This can be your enemy and destroy you because mixed with that excitement can be a sense that you cannot do anything wrong. Why is it that some traders have made millions trading and then lost it all? The answer surely must be that they got a sense that they were now in ‘the zone’ and nothing could destroy them. Excitement can lead to a person abandoning their method and adopting the simple belief that however they trade, things will come good for them. Excitement should be focused upon the act of following a profitable trading model.

Fear
Fear is a feeling of anxiety stimulated by the threat of danger and danger lies on every corner of currency trading! If the graph is going against a person, they may fear losing their money in the trade, or even losing all their money. Fear is an enemy in trading and is common in beginners due to the lack of experience in the graphs in real time. It is very easy to trawl through historical graphs and create models, but when those candles are moving against you in real time, possibly ten pips in a split second, fear becomes very real. The cure for fear is first to have a good trading model and stick to it. There should be no fear when one is following something that they know will work over a period of time. Second, trading models are based on statistics and that means that you will lose some trades, even many trades. As a result, one needs to take risk management seriously. A trader feels a lot less fear if he knows that he can afford to lose this time.

Greed
Greed is the intense desire for wealth. Especially when looking at historical graphs and noticing large movements, a person is tempted to say to themselves that they could have earnt a lot of money if they had traded it. Visions of a big house, speed boat and expensive holidays begin to dominate the mind and reckless trading becomes the main dish for the day. Thoughts that the next trade will be the big one lead to an abandoning of risk management, all the money goes on one trade to reap the maximum effect. Perhaps a line starts moving quickly, leading to the conclusion that it must continue forever, the speculator rushes in to profit from it, only to find that the 100 pip dive has gone back on itself and he has lost all his money. Greed has absolutely no part in trading, pips should be seen as pips and not as money, it is not good to look at your trading balance when trading. I personally avoid almost all connection between money and trading while undertaking speculation in the market.