Most novice forex traders do not realize that their mistakes in trading are not unique. Trading mistakes are common to all beginners and even professional traders, they always have psychological roots, and are part of human nature and psyche.
Professional and experienced forex traders differ from beginners in that they can identify and thus minimize their influence. Mistakes in trading can be divided into two large sections: mistakes originating in the trading strategy itself and a more serious type of mistakes is neglect of an already run—in and working trading strategy or emotional mistakes — mistakes of discipline. If the first type of mistakes is eliminated by studying the market and bringing the strategy to perfection, then the second type of mistakes always leads to over-trading, and is eliminated by working on yourself. One way or another, these classes are interconnected, and in practice these errors always work together.
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Today we will look at several reasons why traders deviate from a predetermined course of action and their own rules when making trading decisions and give some idea of how emotions affect trading.
Very often, a trader deviates from actions on his trading strategy during periods of a favorable period and an "easy" market. Emotionally, it is very difficult to miss a market setup and not open a position when it looks promising, even if it is not confirmed by all the settings of the strategy. And the more expectations there are in front of the monitor, the more the trader wants to open a position based on internal intuition. As a rule, such intuition-based inputs turn out to be losers for the second or third time. It all depends on the emotional experience of the bidder. One way or another, this always leads to over-trading.
It is important to realize that this is a common phenomenon in the world of trading and more than one living bidder working with money is not immune from such emotional breakdowns. It's human nature. It is very important to monitor the volume of your trades. If a trader has started to exceed his average daily number of trades, it is a good idea to temporarily stop trading for a period of three to five days. Take a break. Excessive trading based on emotions never gives positive results.
As you know, the market is governed by two fundamental market emotions - greed and fear.
At the level of human relationships and emotional life, greed manifests itself as an inclination or an immoderate desire to own or consume material goods. We will leave aside moral issues and consider greed from the point of view of practical consequences for trading. Greed always manifests itself in the same way in trading, the main consequence of greed for trading is the blindness of the objective mind, which leads to decisions based on completely or partially ignored objective information, or ignored data of analysis, statistics or facts.
In practice, this always happens when a trader has a very strong desire to earn, he perceives only the information that can confirm his certain position and views. On the other hand, all out-of-context data that contradicts formed expectations is ignored and rejected.
Another factor in the manifestation of greed in trading is rigidly fixed profit expectations. This happens when a trader rigidly sets the percentage of the desired income from his transaction. This deprives him of mental flexibility and binds him to a non-existent result.
The professional approach of successful and profitable trading consists in the ability to avoid trading based on emotions, overcoming intuitive influence, misleading. The ability to act strictly in accordance with the trading plan, and not rush to trade to recover losses without taking into account real trading opportunities.