Fear in the Forex Market


Fear is the trader’s worst enemy.  Fear taps into the primitive part of the human brain, triggering a fight or flight response.  When this happens to a trader you start making fear-based decisions, such as holding onto your losses too long and cutting your winners too short.

Successful traders are still human, but have managed to eliminate fear from their forex trades.  They can do this not because they’re biologically or physiologically different from the rest of us, but because they’ve come to terms with the most important fact about the forex market – that the market does not care about anyone or anything, especially you.

Fear in the Forex Market
Fear in the Forex Market

It sounds harsh, but it’s quite true.  And the sooner you understand that concept, the sooner you’ll be on the path to consistent forex profits.  However, it’s important to understand how one can come to this realization – after all, it’s one thing to be told this fact, but another thing entirely to experience it.

Take the beginner trader.  This trader is new to the market and therefore has no fear, as they have no reason to be fearful yet.  They place a few trades, and beginner’s luck takes hold and they run up a few profitable trades in a row.  While this all sounds great for the new trader, it’s setting them up for failure.  The trader is experiencing all the benefits of successful trades without having yet experienced the fear that comes with losses. And they will come.

When that happens to our new trader, what’s going through his mind?  He starts to feel real fear, for the first time.  After all, he thought he had this thing all sorted out, that he had a fundamental understanding of how the market worked. Now, all of a sudden, the market has failed to behave the way he expected it to behave.  Suddenly his entire market belief system is shattered, and the fear creeps in.  The trader now views the market as an adversary, not a friend, and all those instincts and feelings we would normally feel towards someone or something that was unfriendly towards us starts to surface.

The new trader is now guided by his fear, and seeks ways to remedy the situation without really understanding why it happened in the first place.  He seeks answers in trading strategies and indicators, looking for that magic patch that will make things right again.  However, all of his trades will still be based on fear, leading to all the common mistakes committed by fear-based traders.

The only real solution is to understand that the market owes you nothing, and also that the market isn’t out to get you personally.  Once you come to terms with that, then you can begin to take the next step in removing fear from your trades by employing a structured risk and money management approach to your trades.  Establishing a carefully thought out trading plan for each trade, using proper stop sizes and, especially, the correct position size for your account, will lead to emotion-free forex trades.  Only then will you achieve what you set out for in the first place – to become a consistently profitable forex trader.

 

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Fear in the Forex Market

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