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Greed – There’s an old saying that you may have heard regarding trading the markets, it goes something like this: “Bulls make money, bears make money, and pigs get slaughtered”. It basically means that if you are a greedy “pig” in the markets, you are almost certainly going to lose your money. Traders are greedy when they don’t take profits because they think a trade is going to go forever in their favor. Another thing that greedy traders do is add to a position simply because the market has moved in their favor, you can add to your trades if you do so for logical price action-based reasons, but doing so only because the market has moved in your favor a little bit, is usually an action born out of greed. Obviously, risking too much on a trade from the very start is a greedy thing to do too. The point here is that you need to be very careful of greed, because it can sneak up on you and quickly destroy your trading account.
GBPCAD has gained this week but it managed to still hold within the Ichimoku cloud in the daily timeframe. The price ran to a fresh six-week peak today at 1.7376, climbing above 1.7340, which is the 23.6% Fibonacci retracement level of the upward wave from 1.5875 to 1.7790, following the rebound off the six-month uptrend line. The technical indicators are ...
One pound on Monday can bring you 1.19 euros. On Tuesday 1.20 euros. This tiny change may not seem like a big deal. But think about it on a larger scale. A large international company may have to pay foreign employees. Imagine what this can do for a practical purpose, if, as in the example above, a simple exchange of one currency for another costs you more, depending on when you do it? These few kopecks add up quickly. In both cases, you, as a traveler or business owner, can keep your money until the forex course becomes more favorable.
Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading and seek advice from an independent financial advisor if you have any doubts.
The 2nd method is by performing a carry trade, where you can profit by buying a currency with a higher interest rate, and selling a currency with a lower interest rate. An example of this would be the USD/CHF (Swiss franc). If you buy USD/CHF, you are buying the USD, and their interest rates are higher than Swiss interest rates, so if you hold the position overnight, every day you hold the trade you will make money, and the money will be deposited in your brokerage account.
Many traders enter into a tailspin of emotional trading and losing money after they hit a string of winners. The reason this happens is because they feel confident and euphoric and forget about the real danger of the market and that ANY TRADE CAN LOSE. The key to remember here is that trading is a long-term game of probabilities, if you have a high-probability trading edge, you will eventually make money over the long-term assuming you follow your trading edge with discipline. But, even if your edge is 70% successful over time, you could still hit 30 losing trades in a row out of 100….so keep this fact in mind and always remember you never know WHICH trade will be a loser and WHICH will be a winner.
There is only one piece of advice to solve the problems of traders that can be drawn from studying Forex trading psychology - and that is to develop a trading plan and stick to it. As a trader in doubt, you should absolutely feel free to research every other possible remedy available, but the chances are that you will still come back to a simple trading plan. It's understandable for traders to feel fear when they are trading.
However, this can steer you away from a carefully planned trading strategy. Even worse, it could cause you to make rash decisions, with the hope of turning that losing trade around, causing you to lose much more money than you would have if you had just left it to play out. Instead of focusing on the long term plan, your mind wants to focus on making the best out of this short term losing position.
You need to become an organized trader. If there is something that is the “glue” that holds all of the points I’ve discussed in this part together, it is being an organized trader. By organized, I mean having a trading plan and a trading journal and actually using both of them consistently. You need to think of Forex trading like a business instead of like a trip to the casino. Be calm and calculating in all your interactions with the market and you should have no problem keeping the emotional trading demons at bay.
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