Psychology Behind Forex Trading: FEAR

Second Demon: Fear

This is the demon that makes us indecisive in everything we do. With a sharp voice and fearsome sight, fear demon keeps on growling and bellowing all the time to make the traders feel fear.

Fear is just the opposite of greed. As greed tries to convince a trader that the opportunities are losing and to make profits he has to open and close the position as a machine gun. Fear puts its face forward by convincing the trader that regardless of how he perfected his trading strategy, he is going to be in a loss in the long term.

A fearful trader would act irrationally and base his decisions or lack of them on his fearful state of mind. Also, a trader under the shadow of fear is unable to realize the extent of the losses that are the result of mistaken assumptions. As a result, his account starts looking red, which means no profit, but loss, loss and loss. This fear demon convinces the trader to take more irrational decisions which further ruins and ultimately clean off the account.

However, traders who are fearless and trust their fundamental or technical skills are conservative in their decisions. Although a conservative trader is agnostic about everything he hears, he is still convinced and waits for the forex market to show the right signal for a specific scenario.

On the flip side, a fearful trader listens to everything, but with distrust. He does not even trust his study and has no idea what to pick up for trade and what to ignore because everything seems same to him. He distrusts his own logic and has no tool to analyze the developments in the market. The end result: the devastation of the account, filling it with red ink as panicky gambling takes over.

To avoid this fear demon, the first thing that a trader must understand is that he should have appropriate knowledge. He must have a well studied and planned trading strategy in mind with a control on his choices and a will that any fear demon is unable to shatter. His trading strategy should be based on logic and should be so compelling that he acts hermetic to any emotional cries of the crowd.

A deep study and proper understanding of forex trading can lead to a logical and calm mind of a trader. Another way to avoid fear is to put in only that much, losing of which does not affect our financial status and we just forget the loss and move on in life with a happy face. Those traders who put in everything out of greed end up losing everything out of fear. Remember half-knowledge is the culprit of all the losses traders face in forex market. With this in mind, let us move on to our next demon: EUPHORIA.

Chapter 20……Psychology Behind Forex Trading: EUPHORIA……>>>

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