Fear and greed in fact control the markets. The first step in overcoming fear is to recognize the various forms of fear connected with trading. The second step is knowing how to control those fears. Greed is also a form of fear which is the fear of missing out. So you need to control and face your fears in trading.
Have you ever thought why do so many people rush to the departmental store during the sales season? Is it the fear of missing out. Any kind of buying mania stems from the fear of missing out. People are afraid of missing out a good opportunity. This form of fear is a kind of greed.
Greed will overcome you when you see a potential opportunity in front of you. You are afraid of missing out a good profitable opportunity. Greed is another form of fear. This fear manifests itself especially during a sharp rally or decline of a currency pair in forex trading or the stocks in a stock market. Suppose you are interested in choosing a good currency pair for trading. You see on your computer monitor that the EUR/USD pair is making new highs, as it keeps on going up and up. You become greedy!
Your heart starts pounding. Immediately buy, buy, and buy signals start ringing in your mind. You start feeling the acute pain of not being in the market when the EUR/USD pair continues to move higher and higher.
This fear of losing out hypnotizes you into placing buy orders frantically. You start thinking, Everyone is buying and I havent. I am losing out a highly profitable trade. You have some doubts at the far back of your mind but you simply ignore them. You want to ride the trend just like everyone by rushing into it headlong.
The mindset, How can I not be buying/selling when everyone else is buying/selling, is extremely dangerous. This type of fear is very dangerous and it compels you to enter into a trend very late when most of the buying has been done. Be disciplined and be glad to think that most of the traders are pouring dumb money into buying a currency pair.
There will be winners. There will be losers. Trading is like a game. Sometime you win. Sometimes you will lose some of your trades. You should know that the fear of losing out is the most prominent among the new traders.
Many new traders become victims of analysis paralysis. New traders become afraid of pulling the trigger when it comes to entering or exiting a trade as they fear losing money. New traders dont yet have the adequate skills and knowledge to help assess and evaluate trading opportunities with a high level of confidence. This leads to trading paralysis.
Now you should not be afraid of pulling the trigger and being fearful of damaging the account based on only one trade. How to overcome this type of trading paralysis? Decide before entering into a trade, how much you can afford to lose. Use a stop loss order that is in accordance with your money management rules.
Do not get caught up feeling invincible or pessimistic after a win or a loss. It is very easy for traders to oscillate between emotional high and low. The outcome of just one trade should not affect your overall performance. Try to develop your own winning forex trading system that can give more winner than losers in the long run.
Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in day trading stocks and currencies. Know These Forex Charts. Learn Forex Trading!
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