Hello, my dear fellow community members and my dear readers.
Today I am going to talk about the greed and fear. I am sure that most of you are already aware of these two emotions.
FEAR Many of us, in fact, all of us have a fear when we are trading in the markets - the fear of losing. But why does this fear arise? when we say that we have no fear of anyone then how come that we have a fear while trading when there is no one around us? Well, the answer to this question is- this is the fear of losing, the fear of losing the money. In today's world money is the most valuable asset. Losing money seems to be losing the very important asset in your life. When we have this feeling of losing something which is very important and dear to have, we tend to be afraid of it. We have a fear in mind. This is what happens in the markets. We don't want to lose the money, but the decision that we made is going against us and we may lose money in the process. This fear shadows our mind and we tend to take wrong decisions in the market resulting in the loss of the capital.
GREED Greed is another most important factor or the emotion. It is something that we all have encountered. Greed comes into being when you have a winning position but you are not ready to close that winning position. You want all the profits into your account today. You don't want to trade tomorrow. You want to finish everything today. You are not happy with 10% profits in your account. You want it to touch 50% and when it touches 50% you want it to touch hundred percent and when it touches hundred percent you want it to touch 200% and so on but you are not ready to close the position. This results in price reaching resistance level and falling from there in a quick-time, giving you no time to react or to book profits. In this case, at a certain time, you are having 200% profits in your account but you are so greedy to ask for more from the market that you did not close your position then. You either waited for the break even or maybe close your position in the loss.
You can also overcome greed by following the strict money management rules. Now that is what we are going to talk about so that we can get rid of these ghosts like emotions because the market is all mechanical and there is no place for emotions here.
Following are the few techniques to overcome these 2 emotions.
Calculate Your Risk ToleranceAs the Forex trading involves high risk, one should calculate the amount of risk that he is willing to take without any fear in his mind. The position size may be calculated before opening a trade. The position size must be based on the risk tolerance which is mostly expressed in terms of the percentage. I recommend not risking more than 1% of your trading capital on a single trade. The size of the position should be such that if the stop loss gets triggered then you should not lose the money more than your risk tolerance.
Follow the Trend
The current market trends give necessary inputs for all good trading systems. You should take cognizance of moving averages and the government policies, so as to spot and follow trends. It's necessary to providentially decide the market you wish to take a position in. As trading goes on for twenty-four hours each day, it's impossible to watch and trade in all the markets. The European and U.S.A. markets are most liquid, however, the profit created solely depends on the investment plans and strategies. Currency markets endure immense trend changes once the fundamental report is very bullish or bearish.
Create Your Own StrategyCreating your own strategy is the most to test the strategy and make required changes. The strategy formulated by you can be tested in the demo accounts as almost all the brokers provide demo accounts to test your strategy. If the strategy works for you then it is better to stick to the strategy. I am in the favor of sticking to the strategy as you know the in and out of the strategy. With your own strategy, you know very well when to get in and out of a trade. There is a need to have a constant focus on what is happening in the market so that you are always up to date about all the events out there and take the necessary action to save your account from the loss that may occur because of the news in the market. It is always advisable to learn from your previous mistakes and make a note of what you did wrong in the past so that you can make a better decision next time you have the same conditions. Every trader has different risk taking capability so there is no profitable strategy that is common to everyone.
Preserve your capitalThe next most important thing to do is to preserve your capital in the market it is not advised to put more than 1% of your capital at risk in a single trade if the total capital is $100,000 then you should be taking no more than 1000 US dollars loss on a single trade.
Don't over tradeI generally keep only one position open at a time and without significant backup sufficient margin in your account, it is very risky over trade in the market. In a normal case you should not take more than 01 positions at a time if you do this then you will become emotional and will take emotional decisions which are not good for a trader. This usually occurs when there is a high volatility in the market.
I will appreciate your comments in the comments section.
Happy trading to all.
