Sunday, February 25, 2018

Forex: The Fears of Trading Currency

October 17, 2010 by  
Filed under Trading Mindset

What is Fear? Well, you can look it up in the dictionary and google it, the answer will be simply put as an emotion of being afraid. When it comes to trading currency, we all feel afraid at some point of time, and the key is how we ‘steel’ ourselves to face this concern when it comes to our risk. In this blog post, we will be review 4 major fears when it comes to forex trading and how we can deal with it.

Fear of Losing Money

Afraid of losing money in your forex trades has a few consequences. It makes traders to hesitant to execute their trading plan. And this will lead to the inability to make new trades and also new exits. This will create a lack of trust in your strategy and dent your faith in execute future trades.

Now you can see a possibility that this fear can set in motion a vicious cycle of repeating doubt, creating the traders’ lack of confidence in making new trades. To understand why traders stop entering their trades even if their trading plan so it is so, we need to look deeper. Chances are, they lack of confidence in their trading plan. And also, by not trading, they stay away from possible pain in their trading losses. That is the action that stopping these fearful forex traders from gaining their possible profits.

The truth is, everyone will have some losses. Even the best of the best. When you have that fear of entering your trade, just realize that you are focus too much on the results and lose focus on your execution process. Having a written plan and practice executing your plan.

Fear of Missing Out

This fear has another name, it is called Greed. The reason is because the forex trader isn’t trading based on some technical analysis but because the market is moving in a direction without him. The fear of missing out came into those forex traders’ hearts as they wish to experience the same feeling as their friends whom talked about their winning trades. As we are know, envy isn’t really a virtue. At this point of time, currency traders will just click and enter the market regardless of the reason. This will blind them from the downside of the trade. Simply put, they enter the market dangerously and blindly.

In this fear, the written trading plan is important. Before you enter the trade. Look at your trading plan. Are you following your plan? If not, why are you doing otherwise? Stick to the plan. Chances are, you are safe and sound.

Fear of A Profitable Trade Turning into a Loss

Many forex traders will prefer grab the quick profit and find another trade instead of let it run. However, chances are they usually let the losing trades run like amok.

Why is that so? Traders whom does these action usually want guarantee profits, which results in getting their profits before hitting their usual profit target. And when they let their losing trade run amok, is they think their money management is in place, so they think they are pretty much safe in capital perseverance. However, the usual thing that happen to them is the profit isn’t enough to cover their losses.

How should we take profits? Should we just fixed a profit target or should trail the stop loss till the trend breaks?

As for those who can accept more risk, trailing your stop loss is a great idea. For those who are more conservative, a profit target is just about right for you. However, there is a way to get the best of 2 worlds.

Kathy Lien taught me during the Singapore Investment Fair at 21st and 22nd of August. I forgotten the name she used. The idea is somewhere like this:

When your trade is going in your favor, release half or your position size, creating profit for your existing trade. Take your another half of your position size and let the profit run.

The advantage of this way is you have already secured your profit, through the closing the half of the position size. When the market does not go in your favor, you have nothing to lose. If the trend carry on, let the profit run on the trailing stop loss and gain as much as you can.

Do bear in mind. Let’s say you aren’t losing, but no where near the winning price even after a few trading days. Take the profit, and find better opportunities. This is known as “time stop”

Fear of Not Being Correct

Guys will be hit by this fear very often. Why? I have to say this is a psychological aspect on guys since very young. We have to be right, correct and flawless in what we do. If we don’t, we will be punish, fine or worse, fired and lose our job in some cases. Thus, this always strive us to be do things good and by the rules book.

And this mentality brings over to trading forex. We will strive to be right in our analysis and prediction. We need to be right, or we will lose money. However when it comes to trading, traders must look at it as probability game, where their analysis could go both ways, right or wrong.

Ego is also another factor for wanting to be correct. Ego can lead a trader to equate his net worth with his self worth. Egoist traders will take their winning trades too quickly and wait on their losing trades in a misplaced hope of breaking even.

If you noticed you have this problem, congratulations. Not many people has the courage to admit their ego problems. Instead of grading yourself on how much money you make, but based on how effectively you executed your trading system’s entry and exit signals. This is much easier for ego traders to let got.

In conclusion, your forex trading plan must account for the fear you will experience. Move your mindset from fearful to confidence, which will allow you to execute your trading plan better and increase the effectiveness of your forex trading plan.

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