Professional traders know that currency speculation sometimes awakens the most powerful human emotions that are periodically uncontrollable. These are greed, excitement, aggression, which, when self-control is lost, could entail even depressive states. And if a professional learns over time not to be led by destructive emotions, it is difficult for a beginner to deal with them. Especially if it is greed.
As soon as it comes to trading in financial markets, one can hear that such a type of earnings as forex trading can bring speculators much more profit than they can imagine. The financial opportunities of professionals are almost endless and in support of this statement there are a number of stories of famous businessmen who started with Forex. That is true, but do not forget that in order to achieve such results, a person must extinguish any manifestation of negative emotions and greed mixed with excitement are the main enemies of a trader.
Yes, human beings are such kind of creatures, when they achieve a certain good, they automatically want even more. No one has boundaries in desires, that is how we are arranged. We list the main problems that plague a trader in the process of trading in financial markets.
Ambition is good only when it manifests itself sensibly. But when it comes to money, even indirectly, common sense fades into the background and greed begins to rule everything. Especially if the first couple of transactions have worked out very well. And trading on a demo account, from which the vast majority of speculators begin their work on Forex, is different in that there is no psychological barrier - the money is not real. There is no fear of losing funds, and trade is most often like clockwork. Therefore, it seems that the impossible is possible, despite the lack of real trading experience.
That is why the majority of ambitious traders do not want to stay on the demo and strive to quickly go free swimming in the financial open spaces. They think about the same thing - if everything turned out on the demo, then in the real world they will also succeed, why waste time in vain? A classic example of uncontrolled greed is to make a profit as quickly as possible.
The hope of profit should in no case be the driving force for the trader. The thing is that hope, as a rule, is not supported by anything substantial: neither experience, nor diligence. Again, this feeling in trading is mainly encountered by beginners who hope that the profit will certainly go into their hands, assuring themselves that they can earn on Forex without deeper knowledge. Of course, disappointment will come very soon, and harsh reality will strike a trader at the most unexpected moment.
The second way of uncontrolled hope manifestation can be observed among traders who hope for a successful resolution of the situation with all their might. A classic example - a trader opened a deal and expects that the price of an asset is about to reach the required value. The market behaves differently and the trader dutifully watches how he is losing his hard-earned money, but at the same time he does not close his position in order to save at least some funds, but continues to hope that the market will make a U-turn in the near future. Yes, this happens sometimes, but often the hope is not justified, and the trader goes into the red.
This can be avoided by thoroughly studying the market and the analytical data by leading experts in the forex industry. It is unreasonable to act at random, the result is often the same - a drain.
Lack of self-control
But this "vice" is already directly related to the main enemy of the trader - greed. Hard work and calm are not familiar to the trader who has lost self-control. He is not able to wait for appropriate time if the situation requires it, but on the contrary he dips into the pool with his head, now and then ignoring the obvious signs of unsuccessful trading.
As you know, after a failure in trading, it will be reasonable to wait some time outside the market at all, or, having closed positions, observe the movement of the market without making any radical decisions. In this case, the trader benefits in any case: if the market turns against him, he will make sure that he made the right decision and closed the order until he has lost everything to zero, but if the market goes according to his expectations, on the contrary, the trader will be able to understand how to act for the future. In any case, it is quite possible to find positive things in both situations.
However, speaking objectively, high expectations, uncontrolled hope and the lack of proper self-control can occur not only during the transition from demo to real. Also, a common mistake of already practicing traders is the desire to earn even more by topping up a deposit, increasing leverage or opening an invariably risky transaction. The trader realizes that he is taking a risk, but in the wake of good luck it seems to him that the sea is knee-deep and profit is almost in his hands. The shroud of imaginary good fortune blinds one's eyes and even sometimes a number of unsuccessful deals do not sober up the distraught trader.
Trader’s signs of greed
Above, we pointed out the main signs of a trader’s greed, but it should be understood that there are actually more of them. We list the situations in which greed takes possession of a trader:
- Lack of a clear strategy. Despite the rules that a trader must adhere to during the usage of a particular strategy, it appears that he actively ignores them, thereby exposing himself to a loss of deposit.
- The transition to increased leverage and more stringent trading conditions in general. The so-called win back of a previously lost deposit. It seems to the trader that if now he takes the maximum risk and bet almost all his deposit, he will be able to hit the jackpot without wasting time on the “sparing” volume of the transactions.
- Money is constantly in circulation, and not withdrawn from the exchange. Thus, the trader expects to trade on all available funds, wanting to get as much as possible in case of a successful transaction. The likelihood that the transaction may be unprofitable is even higher, but the gambling trader is unlikely to stop it.
- Ignoring limit orders and stop orders in principle, believing that such an approach to trading only squeezes the trader into the framework and does not allow him to trade at his best.
- Trading activity increases significantly. As a rule, this applies to intraday traders. If earlier such traders opened five transactions a day, then greed pushes them to trade more actively, forcing them to open ten or more transactions. That happens because there is a desire to recoup or make money beyond what has already been obtained as a result of trading.
Do not forget that greed entails increased stress and nervousness, which accompany an active trader throughout the trading process. And this is a direct way to the depletion of the body and it is impossible to think about any rationality in the course of transactions in the financial markets. In a word, one thing entails the other.
Typical trading errors of traders
Do not forget that not only greed entails a number of traders’ mistakes in the process of their trading, but other factors can also affect the normal Forex trading process.
For example, novice traders commit a number of errors related to trading, which, one way or another, entail failures in trading. Let's point them out:
- Lack of sufficient information about the Forex market and other financial markets.
- The desire to cover as many trading assets as possible in the process of speculation, without deep understanding the features of any of them.
- Ignoring analytics and expert forecasts.
- Unwillingness to learn the analysis of the assets’ market behavior.
- Lack of a good and clear trading strategy.
- Trading without stop losses and limit orders.
It should be understood that the combination of trading and traders’ psychological mistakes entails a number of dangers that in one way or another negatively affect the trader’s deposit and his success in the financial markets as a currency speculator.
Only trader’s clearly defined goals will help to overcome the threshold of greed and excitement. Start with the theory, smoothly moving on to practice on a demo account. Yes, the beginning will be long and monotonous, but sometimes the game is worth the time and effort spent. Let the successful traders’ stories become an example, not a template, for beginners, because they, too, once started with something and went a long way, which eventually led them to their cherished goal.
Author: Kate Solano for Forex-Ratings.com