Emotion creates a most problematic situation for Forex traders. Because of the psychological and mental instability, many potential traders leave the market. Some of them leave it for facing too many losses, while others leave it in fear. Emotions negatively impact the trading styles and drive an investor, either greedy or scared of the market. We are here to help people to overcome their mental instability. In this article, we will explore how these beginners can manage their emotions to develop their knowledge and trading skills.
Common emotional problems among the investors
Before we go deeper, let’s discuss the common psychological issues that newbies often face.
1. Fear or being nervous
Sometimes after losing a few trades, the traders in the United Kingdom become too scared of losing their investment further. As a result, they don’t want to enter another trade. Some people leave the market, while others become too frustrated. The nervousness causes them to lose a lot of golden chances to make profits. Be brave and take actions like the top traders at Saxo. Never be afraid to take trades.
It happens when the investor wants to be a “cool guy” by overtrading and earning a lot of money. But the result is the opposite. As a result of being too excited, they lose money instead of making it. These guys prefer taking bigger risks in order to earn more.
3. Overconfidence or being greedy
This is the third group. The greed becomes prevalent when they win a couple of deals in a row. They think of themselves as the Forex experts and start taking greater risks. As a result, a single failure can blow their entire investment and trading account. Finally, these guys leave the industry after losing all their capital.
These are the three most common scenarios that occur in the market.
Best tips to manage the emotions and psychological stresses
1. Take a break
Remember that when you notice there is a change in yourself, like – you are being too nervous or wishing to make more money, be careful. Once a trader notices these issues in him, he should take a break and start doing other tasks. Try to stay away from the platform as far as you can. Even if a newbie faces a couple of losses, he can do this. Moving away from this industry will not attract you anymore.
2. The risk to reward ratio and stop-loss
The risk to reward ratio and stop-loss limit are two vital things that can minimize your losses when there is a collapse in the industry. The risk to reward ratio indicates the possibility to make money from that trade. Professionals suggest that the net magnitude of the ratio should always be less than 1. The 1:1 ratio indicates that there is a 50-50 chance of earning profits or facing losses. The 1:2 ratio indicates that there is a 25-75 chance of risk: reward. Therefore, choose the ratio carefully.
It is also necessary to set the stop-loss limit to avoid any kind of excess losses. Many newbies don’t want to set the stop-loss limit during their trades because most of them believe that setting this limit can minimize the loss. But this is not true. The stop-loss limit ends the deal when there is a bearish movement.
3. Be careful about the trade size
Trade size is also called the position or volume size. Novices want to take a bigger position because they want to earn more profits. For example, when a beginner takes the size of 0.001, it indicates that he will earn/lose $10 based on the market’s movement. If he increases the size to 0.01, it will indicate that he will earn/lose $100 based on the movement per pip. So, think about it once again. By increasing the size, you are multiplying your risks.
These are the three best ways to handle your emotions and the psychological stresses of Forex.