Forex-emotions under control!
You can not be a successful trader if you trade with emotions. Under trade with emotions, we mean the conditions when greed or fear dominate the making of trading decisions. You can not trade successfully if greed and fear control your trading. You will lose all your money and pretty quickly. And this is the main reason why up to 90% of traders lose money.
Follow your method
Emotions keep you from acting at a time when action is necessary. They force you to act in an absolutely inopportune time for this. Therefore, the very first thing that anyone who wants to become a successful trader has to harden is to learn how to overcome the emotional impact on trading. We usually call this discipline overcoming. This primarily means that you must have some method and act in a way that follows this method under any conditions. The most successful are those methods that give their user three key elements:
– a clear and definite reason for entering the position;
– a clear and definite basis for withdrawing from the position with unfavorable developments (stop-loss);
– a clear and definite basis for getting out of the position with a favorable development of events (goal).
Let’s say your method is to follow the recommendations of a site – well, that’s not bad. The first problem in its application is that you simply do not follow the method. Most likely, you just follow only some of the tips that are given, and ignore the rest. In other words, you follow a certain method, but “impermanent.” The reasons why you choose advice for action, apparently, have emotional roots. Emotions become part of the reason why you do not stick to the chosen method rigorously.
In my deep conviction, if you strictly follow the method, you will definitely win, but – almost without regard to the essence of the method itself.
Technical methods and market factors
Now let’s talk a little about technical methods and market factors. The meaning of technical methods is not at all in anticipating and predicting market behavior, as many think, but in developing accurate information, on the basis of which one can act and at the same time control the influence of emotions. The focus is: the so-called. fundamental factors do not give exact numbers, relying on which, the trader can act.
Therefore, fundamental factors, for example, the interest rate, encourage persuasion. And technical methods make it possible to obtain the exact points in which one must act irrespective of persuasion. Hence it follows that the use of technical analysis (without foresight) gives rational reasons for action based on accurate information, regardless of the belief of the trader. And this makes it possible to isolate the action from emotions. It becomes also clear why the foresight of market behavior is by no means necessary for successful trading.
We are talking about methods that do not try to predict anything. These methods are aimed at giving the trader absolutely clear instructions on how to act when and if a certain situation occurs. If you have exact numbers that you need to act on (and you know you will act if you see them), you can better focus on these “important numbers” and not be influenced by “non-important numbers.” Let, for example, your paper is traded at a price of $ 20, and the method orders to buy if the price reaches $ 25, or open a short position if the price drops to $ 15.
No one can say whether the paper will reach $ 25 or $ 15. We do not know this and we can not know. But we can focus on two things: when and if the price grows to $ 25 (and only then) we will execute the purchase (and only this). The same with a price of $ 15. And the rest of the prices for us simply do not exist.
Technical analysis is an excellent set of tools that gives a trader a method – a set of exact numbers, at the appearance of which he must produce predefined actions. Only in this way, through an action facilitated by a method, a trader can neutralize and control his emotions.
Emotions, which in themselves are destructive for the trader.
“Aversion to action”
I would like to dwell more on the often observed phenomenon of the trader’s indecision or even “aversion to action.” I very often watched how traders correctly described and evaluated the situation, pointed out exactly when the action took place, but did not take the action itself. As a rule, they made purchases / sales after a while at an absolutely unprofitable moment, and then could not even explain their behavior. Moreover, often traders simply could not force themselves to act, and it was evident how they did not want to issue an order. Later they came up with the most fantastic explanations for what had happened. What is the secret of this behavior?
It’s all about emotion and method. The above situation is typical for traders who either do not apply any methods at all, or their methods are not exact and deterministic. For example, imagine that a trader uses the following method. Make a purchase when the parameter% R for a given stock is in the range from 0 to 10. And, accordingly, open a short position, if this parameter is in the range from 90 to 100. It seems to be a normal method, nothing special. However, we immediately see that the method does not give precise and unambiguous information about the point of action.
In fact, this is not even a method. This is just a warning system that encourages the trader to pay closer attention to this stock, because it is in a certain specific state (overbought / oversold), and it is expected that it will likely exit from this state. Apparently, this is a typical system based on the idea of foreseeing market behavior, so in its pure form it is doomed to failure and permanent loss. Following this, so to speak, method implies that the trader himself determines a specific point of action. And here his emotions are accepted for their destructive work.
Greed and fear come to the end
First, greed takes over. The trader sees that the parameter% R has reached level 10. It seems that the system already “allows” to execute the order. But the trader sees that% R continues to decline, and the lower it is, the stronger and longer the price movement will be.
Therefore, the trader expects an “improvement” of the situation and does nothing. “I’ll let you get closer,” he thinks. % R drops to 5 and freezes at this point. Now, along with greed, fear appears. And suddenly% R will not go down any more, but will take and grow, and then a favorable situation (fear) will be missed? And if% R falls even further, and additional profit (greed) will be missed?
At any one time, one of the emotions prevails, but not enough to force the trader to act. As a result of the impact of all these emotions, the trader, as a rule, falls into a state close to paralysis. And to deduce it from this state can only a strong movement of the share price. Greed and a sense of lost profit, the fear of not having time to pick up this movement, and also anger at yourself for indecision – in this movement they unite and literally force the trader to place an order, not paying attention to the fact that the situation has changed and does not correspond to the one for which and this order was intended.
So, for the trader there is only way to control his destructive emotions. This method is a method that gives exact numbers as the coordinates of the action. A trader only needs one thing – to follow the chosen method exactly. And then success will come.