Trading in the forex market requires emotional control which is not an easy characteristic to come by when starting out in the financial world.

Money is emotive because it is important to most people. When trading currencies in the forex market, traders are under a lot of pressure not to make a wrong call that would result in losses.

It is important for a trader to exercise discipline and contain emotions while trading stocks. Any wrong moves would result in substantial losses and decisions based on emotions would not help the situation.

There are different emotions that traders experience at one point or another while in the market, from fear to greed, to revenge, euphoria, and the list is endless.

We can look into these types of emotions in detail to gain an insight into the causes and reactions.

But first things first.

The Need to discipline Your Emotions

As a trader, controlling your emotions will help you to avoid making judgments based on your feelings which in many cases might cause you to either take risks or hold back, leading to missed gains or substantive losses.

You need to discipline your emotions if you wish to stick to your trading strategy and follow your written trading rules. Acting on emotions might cost you in the forex markets as the financial conditions keep fluctuating and require you to be in a proper frame of mind to make sober decisions. Your state of mind is a key area when trading currencies and you need to pay attention to it in order to be successful in the market.

To discipline your emotions, start by writing down your trading rules and developing a trading plan. As opposed to having them in your head, this will put you in check such that when emotions kick in the course of trading, you will not deviate from the rules. Instead, you are forced to stick to the plan.

In order to stay sane when your strategies seem to fail and you are running into losses, always be prepared for the impact of emotions. Such preparation will keep you grounded as you will follow the written trading rules.

It is also advisable to start small when trading with real money so that in case of loss, you are in a position to deal with the emotions as you handle the pressure that comes with it.

If you are not confident in real trading and you wish to observe discipline in the trading system you can start with a demo account as you learn the ropes.

Learning from the stories of great traders will also give you an insight into how they deal with losses and handle their emotions.

This will also help you learn the importance of not losing your discipline and how to be successful in forex trading. Finally, assess and review your individual position and performance periodically to help you correct your mistakes and prepare better for trading sessions.

Types of Emotions While Trading

Holding Back Out Of Fear

There is a lot of uncertainty in forex trading since the prevailing market conditions can change at any moment to be favorable or unfavorable for currency trading. Fear is the natural reaction to what a trader perceives as a threat. This might not necessarily lead to a lack of confidence in the market but can cause traders to back out.

Since your trading strategy cannot predict trading patterns or the changes in trading conditions, the market can unexpectedly go against your predictions at any moment. As a trader, you might have the best trading system yet still run into losses when the conditions become adverse.

This occurrence has caused a lot of apprehension in traders especially those who are starting out in the forex market. However, once you understand the uncertainty in forex, you will overcome your fear and won’t get an emotional breakdown when a trade results in a loss.

Being mentally prepared for the worst while hoping for the best will reduce the impact of negative emotions. Being aware of forex uncertainty is crucial in understanding forex trading psychology and overcoming fear.

Trading Out of Greed

As a trader makes gains in the forex market, there’s always the instinct to hang on and continue the winning streak. Such greed might lead to devastating returns as the trader runs the risk of being blown out of a position. Great traders don’t trade out of greed and they don’t make themselves vulnerable to a stressful emotional response.

Place trades when it is necessary so as not to lose money. Avoid hanging onto winning positions for longer than necessary trying to get every last measure of the minimum rise or fall in the price of a security.

Again, your trading plan should guide you when such potentially harmful instincts or emotional whims kick in. This will help you make rational business decisions.

Euphoria and Expecting Quick Profit

It is extremely exciting to make gains in the forex market but such intense emotions can impair your judgment making you forget that trading has another possibility. Euphoria goes hand in hand with greed. In moments of intense happiness, the trader is tempted to hang onto the winning position for longer, in the hope of getting every last tick.

In such moments you can choose to place trading with a huge lot size ignoring the fact that you are risking a huge amount of money. Should the trade go contrary to your expectations, you might end up losing large sums of money or the entire capital altogether. Experienced traders follow good risk management practices and will never face such pitfalls.

Revenge

Emotions can get in the way of successful trading when a trader feels aggrieved by the actions of an opponent. In the quest to prove that they are better than them, they end up with poor risk management practices.

As a trader, if your motive is revenge and to prove yourself then be prepared for devastating results. Don’t be surprised to lose even further.

Decisions based on revenge will cloud your judgment causing you to make irrational business decisions. Learn to appreciate that in trading and business, you lose some and win some.

In forex trading, while a trader should be well versed with the financial components of the trade, the psychological component is an area that can’t be ignored. To be successful a trader should understand how the different types of emotions can impact trading.