Do You Have The Forex Traders Mindset? (Part II)

By Ahmad Hassam

Greed is a form of fear which is the fear of missing out. So you need to control and face your fears in trading. The first step in overcoming fear is to recognize the various forms of fear connected with trading. The second step is knowing how to control those fears.

Why so many people bought tech stocks during the dot com boom? Everyday their mouths would salivate on reading rosy pictures of potential gains that could be made in investing in those stocks further fueling the bubble that was going to burst all of a sudden. Have you ever thought why do so many people rush to the departmental store during the sales season? Is it is the fear of missing out. Any kind of buying mania stems from the fear of missing out. People are afraid of missing out a good opportunity. This form of fear is a kind of greed.

In forex trading, this fear manifests itself especially during a sharp rally or decline of a currency pair. Suppose, you see on your computer monitor that the EUR/USD pair is making new highs, as it keeps on going up and up.

You start imaging that by entering into the market at this time; you can make a windfall fortune. Immediately buy, buy, and buy signals start ringing in your mind. Your heart starts pounding. Your pulse gets fast. You start feeling the acute pain of not being in the market when the EUR/USD pair continues to move higher and higher. Your mouth is watering with the thoughts of making potential huge profits. You dont want to miss out this opportunity. Others cant be wrong in buying the currency pair, you reason out with yourself.

You start thinking, Everyone is buying and I am not buying. I am losing out a highly profitable trade. This fear of losing out hypnotizes you into placing buy orders frantically. You have some doubts at the far back of your mind but you simply ignore them.

This type of trading is very dangerous. It compels you to enter into a trend very late when most of the buying has been done. The mindset, How can I not be buying/selling when everyone else is buying/selling, is extremely dangerous. Be disciplined! Be glad to think that most of the traders are pouring dumb money into buying a currency pair that is already overbought.

There will be winners. There will be losers. Trading is like a game. Sometime you win. Sometimes you will lose some of your trades. You should know that the fear of losing out is the most prominent among the new traders.

New traders become afraid of pulling the trigger when it comes to entering or exiting a trade as they fear losing money. Many new traders become victims of analysis paralysis. New traders dont yet have the adequate skills and knowledge to help assess and evaluate trading opportunities with a high level of confidence. This leads to trading paralysis. They become victims of procrastination. They dont know when to enter and when to exit.

Now you should not be afraid of pulling the trigger and being fearful of damaging the account based on only one trade. How to overcome this type of trading paralysis? Decide before entering into a trade, how much you can afford to lose. Use a stop loss order that is in accordance with your money management rules.

Do not get caught up feeling invincible or pessimistic after a win or a loss. It is very easy for traders to oscillate between emotional high and low. The outcome of just one trade should not affect your overall performance. Try to develop your own winning forex trading system that can give more winner than losers in the long run. - 23204

About the Author:

Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in day trading stocks and currencies. Know These Forex Charts. Learn Forex Trading!