How Much Money are Your Emotions Costing You?

By: Peter Cane

Emotional instability in the stock market is the worst thing that can happen to investors. The same is true for Forex traders. In the same way large profits bring you up, losses can throw you down.

Once you make a decision to buy something and subsequently make losses, you might still hold on even if situations turn from bad to worse, only because you feel (or hope) that things might turn back in your favor again. The obvious problem here is that the decision to stick to a losing trade for too long is an emotional one. You're in no mood to accept a loss and get out of the trade.

The forex market is largely influenced by the general market and you must always trade on what the indications based on the market are, and not just initiate or hold onto one just because your heart tells you to. I'm not one to ignore gut feelings, but the research and trendlines should complement them.

People can become particularly attached to a certain currency. If you have reasonable grounds to believe that currency will do well, then you will actually profit from the exchange. The wrong thing would be opening up a trade in a currency just because your heart is fond of it.

In this case, if you feel strongly about any given currency, just check the reality by looking with sober eyes at what the market is indicating. That will give you a clear picture of whether or not you should trade in that currency.

The basic thing that is needs to be remembered is that once you have initiated a trade that unfortunately incurs paper losses, if all indications are that things are likely to get even worse for you, keep a clear head. It is much better to book losses and come out of it rather than sticking to it and praying and stressing that you are able to see some gains from it. Remember, the markets have little room for emotions.

Forex trading is not a win-win situation. Be prepared to lose on some trades as well. That's the precise manner in which the market works. It is not really a question of whether you are right or not, the fact remains that markets move in unexpected ways and they have a knack of surprising people when they least expect it. All fundamentals and even experience may be thrown into the air when the markets decide to do something.

All you can do is trust in your understanding of markets and follow the indications they gives you. Don't look back with regret. If you feel that after initiating a trade things are not going the way you had foreseen, use that same knowledge and understanding of market forces to accept your losses and get out of it. Better to invest the amount saved in some other trade and make good gains rather than sticking to your losing trade.