Five Mind-traps in Forex Trading

Along with the development of the Internet connection, Forex trade is becoming more popularized. Anyone can start to trade with one computer. It could be found that a big portion of this market is consisted of non-professional traders. They are attracted by the quick money, and of course could step into some traps easily. Let’s see what traps are.

1. Wrong estimation

Many beginners thought that it is easy to profit, especially when they trade with demo account. However, if these traders are managing to profit in a sudden, they would consider trading is a comfortable job which can produce big money with little effort. For these who lack of experience, one good luck may lead they believe the market speculation is the key to success. Unfortunately, when these traders begin to trade in real account, the well-performance in trading may disappear. Real money loss in the complicated markets resulting in disappointing and depression.

2. Real account vs Demo account

When a trader transfers from demo account to a real account, they are coming across the most harsh problem: trading psychology. In other words, trading could be easy without loss risks. Nevertheless, when traders invest real money earned by sweat, focus of attention and target price would be forgotten entirely.

Commonly seeing, it is rather comfortable to use a demo account, even if the market goes diversely with your position. In this case, you could focus on your price target, and wait for the market heading to your expectation. Your personal emotion would not be affected by the fake money. But, when the trading behavior would influence your real assets, you may not think and take actions reasonably.

3. Emotion dominates trade

Emotion is the biggest enemy to traders and will always cause wrong judgments and therefore losses. It is believed by psychotherapist Barach Roland (1988, Mindtraps: Unlocking the Key to Investment Success) that emotion born “mindtrap”. He provide 88 lessons learned, explaining many traps in trading, like fear and greed.

Greed

Even though price start to fall, greed will led traders to hold the position for another while to wait for price inversion. This is the major cause for traders resulting from profit to lose. In order to overcome this emotion, you should try to view the reason behind the price. When your position experience a significant rise, asking yourself what is the initial reason to hold this position, if there is a negative answer, it is the time to close or cut the positions.

Fear

Fear will stop traders from entering the market, and resulting in exiting the market too early. If traders over worry about the potential losses and risks, it may always lose a good opportunity. Besides, if a trader is easily affected by fear, he might exit the market too early for the fear of losing current profit. In most cases, this may prevent traders from more profit.

Over analysis

Over analysis is a fun phenomenon. When analyzing a potential investment, a trader may too nervous to start a real trade. Thus, this investor doubts all the details in the analysis and wondering to make a perfect analysis in current situation. Actually, this is an un-achievable task that stop traders gain experience and profits.

There are other emotions that dominate traders in trading. For any market participants, the key thing is to recognize these emotions.

4. Know your emotion

All traders was experiencing at least one mindtrap. The bright traders learn to distinguish, understand and absorb them. This is the basis for any trade training. Therefore, if you want to become a sophisticated trader, you should take time to learn about yourself and the mindtrap you easily step in. A mature trader should control his emotion and the strong motivation that negatively affect his trading performance.

5. Trade experience

Trades are human being not god. Thus there is no perfect trade. However, when a trader learn to control his emotion, profit can be realized. This could be easy for some people, but would be difficult for others. Only accumulating market experience constantly can training this skill. Thus, before you learn to profit, you have to bear the risks ( at least start in the real market), learn to control the emotions brought by profits or losses.