Effects of Trading Psychology in the Forex Market

trading psychology

Trading Psychology

Trading PsychologyTraders often violate their trading decisions due to the impact of trading psychology. It is trading psychology, which resists traders to execute their analysis and trading decisions.

As a human being, you cannot eliminate the effect of trading psychology but to be a successful trader, you must keep yourself away from major psychological problems.

4 Psychological Problems

  1. Fear
  2. Pride
  3. Greed
  4. Revenge
  5. Euphoria

1. Fear

It is the most destructive psychological problem in the trading which is a composition of worry, alarm, fright and panic. If you do not manage this major psychological problem, properly then it combines with other negative emotions such as hatred, anger, hostility and revenge which will have greater destructive power. There are two forms of fear; one is fear of losing, and another is fear of the missing out.

Fear of losing and fear of missing out are related to one another. Fear of loss occurs when a trader is worried about entering into a trade though he has got an entry signal. Fear of missing out occurred when a trader missed one of his entry signals. This is why a trader should be neutral and should not be afraid of entering into a trade as per his trading strategy.

2. Pride

Pride is another important psychological problem and the prime reason for failure for many traders. This is a form of unusual behaviour as a trader is too stubborn to refuse his mistakes and possibility of getting the loss. This leads a trader to improper risk management as the trader is unaware of the possibility of loss. The psychological problem leads a trader to a massive loss or margin call as he violates his stop-loss strategy.

3. Greed

This is another major psychological problem occurs in the trading. This is an unusual overconfidence and desire to make big gains in the short time. This problem has a huge impact in the forex trading as forex market is a highly leveraged market.

Due to this opportunity for high leverage traders mostly use a high amount of leverage to make significant gains. This scenario can quickly lead the trader to a margin call. In most of the cases, these quick short profits are too little to cover up their tremendous losses.

4. Revenge

In some of the cases, traders tend to take revenge on the market when their specific trades are against them. In forex trading, there is no certainty or a sure thing. Having some losing positions as usual. This psychological problem is a reflection of pride which seems due to being overconfidence.

5. Euphoria

This is a form of greed which appears after the huge winner or several winning trades. If you think that the feeling euphoric is a good idea, then it might incur massive losses in the trading account. In this case, traders tend to hold the several losing positions after the big winner or several winning trades.

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