Emotions in Trading

The trading environment is in famously faced paced, with many potential opportunities but equally as many pitfalls. As traders enter the market for the first time, some but not all will know that the odds are stacked against them. Research indicates that a huge 80% of traders will lose money, whilst just a tiny 1% will go ahead and turn a profitable account on a long-term basis.

Rationally, these are not favorable odds. If a business had an 80% probability of failure would you jump in anyway. The answer is almost certainly not. So why is it that trading, despite the odds being stacked against still attracts so many? Why do trades get involved in trading even though they know that the possibility of them failing in so great?

One of the reasons that trading attracts so many despite such challenging odds is because the rewards are extremely enticing. The rewards of running a successful account, of not being tied to a job that bores you, the independence and the fact that you could even go it alone financially and become self-sufficient, these are all extremely enticing benefits enjoyed by those who are successful and desired by those aren’t.

The fact that success stories are also fairly easy to find on the internet also goes some way to encouraging the dream. So, whilst the odds are clearly against you, there is still a chance of success.

So, what differentiates those who trade and win from those that lose? A trader must somehow create an edge, be one up from the rest of the market and the best way to do this is through controlling emotions.

Fear and Greed

There are two key emotions which a trader’s decisions and therefore drive market behavior. These are Fear and Greed.

Fear is often considered a performance inhibitor. The fear of losing is probably the most common reason why traders don’t get off the ground and out of the demo account. This striving for perfection is unrealistic but it can make the very thought of trading real money too petrifying.

Greed – the focus on earning more and more. The ambition to earn is so great that it can lead to malpractice which ultimately is detrimental to trading. For example, excessive risk taking, not using stops, over trading, all of which come from the impulse to earn more.

To be a successful trader it is essential that you leave your emotions behind and trade a logical, rational plan. The best way to not trade emotionally is to have solid trading plan and stick to it!

On the Vantage FX website there are many articles and resources to help you get to grips with your emotions whilst trading, for example support and guidance on creating a trading plan. Furthermore, using the bonus offers they offer can also be an excellent way to bridge the gap between the demo trading account and a live trading account.

  • Posted by Teri Patterson
  • On May 23, 2018


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