Four emotional trading mistakes

Discussion in 'Forex - Currencies Forums' started by Daniela-TFC, Jun 20, 2014.

  1. Daniela-TFC

    Daniela-TFC Active Member

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    Emotional trading mistakes are very easy to do and many beginners frequently make these errors.

    Below are four very common trading mistakes caused by your emotions. Work on your mindset and your emotional discipline in order to avoid these common errors.

    Revenge Trading

    You experience a loss due to some reason. (Losses are part of the game but especially beginners have difficulties in accepting this….) This loss creates frustration and you become “upset” on the market. You have the feeling that “the market” took something which you feel belongs to you: your money. You are determined to get your money back and you put on a position three times your normal position size in order to make the loss back. You do not stick to your trading plan, you are upset and want to take revenge for the previous loss. These kinds of trades are called “revenge trades” and can lead to huge drawdown’s as you can easily imagine.

    Over Trading

    Many beginners over trade. What does this mean? Overtrading means that traders take every signal even if it does not fulfill all entry criteria. They take a lot of trades which usually means a lot of “bad trades”. Waiting patiently for a good setup which fulfills all your entry criteria is one of the key elements of your future trading success.
    Becoming greedy

    Once in a while you really seem to nail it – you have a well sized trade which shows you a healthy profit. The currency pair actually already trades well beyond your initial target zone. Instead of taking the profit you become greedy and double up your position size because you are really convinced that this time you are sitting on “a rocket”. These trades usually end breakeven or in a loss when you cannot withstand normal fluctuations once a technical retracement starts… Stick to your trading plan and do not forget to book profits once in a while.
    Nervous and incoherent trading decisions

    You had three losing trades (your stop losses were triggered) in a row and your self confidence is a bit diminished due to these losses. You decide to wait patiently for the next good signal and continue to execute your plan. The market rewards your patience and soon you spot a top entry signal. You take that signal and put up a new position. Despite the signal fulfilling all your entry criteria the position soon shows you a small loss. Afraid of taking another full loss you take that small loss and close the position. Soon after the position is closed the currency pair rallies in the anticipated direction. You watch from the sidelines and your frustration is growing while your self confidence goes the opposite direction. If you can avoid the above four emotional errors you take a huge step towards becoming a profitable trader.

    Join the Forex Competition today and start trading with no stress as it is a risk-free Contest!
     
  2. Determined2014

    Determined2014 Guest

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    Those a very true facts and very helpful points when trading, because emotions could lead you t a greater loss that could even shut you down ,leaving you with nothing but losses.
     
  3. dianethare

    dianethare Senior Investor

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    Extreme great points worth noting down, thanks for sharing, kind of reminds me when i was doing binary trading, mostly i was nervous and inconsistent and very anxious, i had to quit because i knew i would lose it all, plus the risks were immense.
     
  4. JaydonTyler

    JaydonTyler Well-Known Member

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    Right brained people make for bad traders. Compulsive individuals never amount to anything in this industry.

    Great post.
     
  5. BudFox

    BudFox Well-Known Member

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    People so often get personal about the markets. Just take the loss and move on; it's just business. All it means is that you are one trade nearer to success.
     
  6. healthandfitness

    healthandfitness Well-Known Member

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    The markets are surely not a place for emotions. Gut feelings and hunches can put you in a bind, and can truly lead to massive losses.

    The moment you get a notion to "double down" to chase a loss, you are no longer a trader, you are officially a gambler. There is truly a thin line between the two. Using a good system and trusting that system is the way to win in the long run. Leave the guesswork for the gamblers.
     
  7. ap4aaron

    ap4aaron Member

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    I completely agree with revenge trading. I have seen people throw their lives away, throw away all their fortune, at the market. They lose money but keep putting more in.
     
  8. pascual

    pascual Active Member

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    It is really a sad spiral. I've witnessed it with a relative and it isn't pretty. Nothing you say can get them out of it, they just want one more go at it and it always ends the same.

    Great tips Daniela.
     
  9. Alvarez_Rules

    Alvarez_Rules Member

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    The wonderful thing about trading is that many of the lessons you learn here are applicable to real life. Great write up and something to keep in mind the next time you're trading.
     
  10. Peninha

    Peninha Senior Investor

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    Great post indeed, if need to use our mind and not our emotions when making business, using our emotions will more often than not result in losses for our side. ;)
     

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