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Greed and Fear When Trading Forex

The key time in a trader’s career is when he controls greed and fear when trading Forex, as well as stops relying on others for tips, stop having to follow others and instead make his own decisions and give tips to other traders. There are some interesting psychological insights to the advanced trader, for one, he is not controlled by greed and fear when trading Forex and usually depends on his decisions to seek the reward from his trading.

Just as there are many positives to trading in Forex, there are a number of negatives too, most of them borne out of the darker human traits and greed is one that can be good in small measures and dangerous in larger doses. That desire can make us work harder, research more deeply, not give up when things look bleak but it can also prevent us stopping when we know we should stop, it can make us risk everything and more, to try to ward off failure.

Markets are driven by supply and demand. Demand is the greed for a commodity, supply is the willingness to satisfy the demand. When one exceeds the other, prices rise or fall – simple economics.

Greed can be good in many ways. Imagine you are completely in control over you greed and decide to watch how your trade is going. It reaches its first take profit level, then its second and then hits the third by which time your take profit order is filled and you walk away with a decent profit. You were greedy enough to hold on a good trade because you prepared your research carefully, you had the anticipation that it will climb through the take profit levels and finally the realization of the profit as you let the pending order close out the deal. If you control your greed, and if you feel good about your trade, you can look forward to starting all over again. Imagine now that you took a trade hoping it hit your take profit point, however, the price gets close to the take profit order only to reverse direction and hit your stop loss order, simply because you haven’t done your research or was unrealistic about your expectations of this trade. If you have no control over your greed, then you will do the same mistake the first time only to loss more and more.

In another way, greed can be said to be a necessary evil for if there wasn’t greed there would be no demand and if there’s no demand it follows there would be no supply. No supply and no demand means no market and so no trading and no profit or loss.

Greed also means that we can refuse to close a trade at the right time, hoping for more and more profits. Often we get burnt and if you follow any of the successful traders you’ll find that most of them make lots of trades, coming out with their profits rather than over committing to a trade.

There’s another emotion which takes us back to the days of our ancestors and that’s fear. There are a lot of kinds of fear but the one we concerned with now is the fear of failing. The fight or flight response used to help protect our ancestors and today a similar response takes over when we are in danger of failing. Either we run away from the situation or we fight by throwing more resources at the problem.

To avoid irrational behavior, such as greed and fear when trading Forex, we have to work hard against instinct. For many, that’s impossible and they are the people who shouldn’t consider Forex trading. They are the kind of people who will fall prey to pleasures. Anything where your urges overpower your willpower is a sign that you will be an emotional trader and that means a broke one.

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