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  • Psychological aspects of trading (Tip 1)

    Posted on: July 21st, 2013 by Ofir Alkoby 2 Comments
    Forex Trading TV Blog

     

    In order to become a successful Forex trader one has to face his deepest and most basic fear of losing and to be able to eliminate it in order to make profits in the harsh environment of the financial markets. The fear factor affects trader’s judgment in every step of the trade, if you are open with a losing trade where should you put the stops and how much money should you risk on this specific trade.

     

    If you are open with a profitable position where should be the exit point and most important at what price will you place the stops (sometimes beginners tend not to use stops at all).

     

    The fear factor is changing from one individual to another since each trader has various different environmental effects and personal attributes that define his character thus behave in different manner to a changing environment. Greed is also a very important attribute that defines the risk appetite of a trader and defines the nature and volatility of the trader’s account balance. Sometimes greed can be very rewarding when riding right direction of the market and maximizing the profits, however in other times when greed diminishes the fear factor and increases the ego the trader can lose all his money at once by not setting stops and waiting for market to change for his favor.

     

    Most of the beginners tend to close winning trades more quickly than the losing one’s since they want to see right away their balance increases in order to raise their confidence and the need to feel successful. But once a trade gone bad they tend to stick with it waiting for “the market to change its direction” so that they wouldn’t need to mess up with their account balance. Sometimes even increasing the exposure in order to improve their average (draw down) and usually this is the point where they stop being active and become passive waiting for a miracle to save their account. Unfortunately the market is no magician and usually the outcome is severe losses sometime even getting margin call from the Broker.

     

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