Imagine getting behind the wheel of a car. If you follow the traffic laws, stop at red lights, and respect the speed limit, you will reach your destination safe and sound. But if you ignore the rules, you risk traffic violations, catastrophic accidents, a totaled vehicle, and severe injury to yourself or others. In the worst-case scenario, reckless driving leads straight to imprisonment.
Forex trading operates exactly in the same fashion. The market has laws governing risk, leverage, and discipline that must be adhered to for survival. Do so, and you can protect your account and hit your financial objectives.
Ignore them, and you risk trashing your trading account, shattering your financial health, and mentally being imprisoned by stress and regret.
The Two Enemies: Greed and Fear
When you log in to your trading platform, think of yourself driving in an arena where the forces of greed and fear are constantly trying to wrestle control from you.
Greed: Speeds toward an inevitable crash. If greed were a vehicle, it would be one where the accelerator is pressed to the floor on a tight, dark bend.
If greed kicks in when the markets go on your side, it would compel you to over-leverage your positions, maximize your lot sizes, and disregard the stop-loss level, which will only leave your trading account total.
Fear: Breaks down and applies the brakes when theyaren’t needed. Fear does the opposite.
If greed makes you go faster towards total devastation, fear will force you to a screeching halt and make you hit the brakes unnecessarily.
In this scenario, you close your trades too early or completely refuse to take legitimate trading opportunities out of fear of losses.
The Mirage of the Perfect Technical Strategy
Many traders embark on a years-long quest for a “Holy Grail” technical strategy. They believe it exists to steer them smoothly through life’s financial roadways. This is a dangerous trap to fall into.
Technical perfection isn’t a reality because:
- The market is probabilistic: Not even a perfect GPS will help you anticipate an abrupt roadblock. No trading system will have a 100% success rate.
- The battle is for execution: This is where it all falls apart. When the markets go on an extended losing spree, can you stay collected, or will you rage on the highway?
- Accepting the unpredictable: You have the option to rage and slam on the brakes every time you encounter traffic, or to accept that you cannot control the market, but you can control how you drive.
Rules of the road: How to win the inner battle.
If you want to conquer greed and fear in your Forex trading journey, make your trading plan the equivalent of the unbendable traffic laws.
Buckle up! Keep your individual trades to no more than 1%to 2% of your account size. That ensures that if you do get in a minor crash, your trading account does not have a total loss.
Plan your route! Define a written, structured entry point, targets, and exit strategy before placing a single trade. Then, review every trade in your journal, keeping track of how well you follow these trading routes.
Leave your ego in the passenger seat! A stopped stop-loss isn’t a catastrophe but just another point in the journey, so do not get bent out of shape when price movement does not go your way. Do not forget, the market is completely indifferent to how you feel.
The Ultimate Goal
When you decide to stop resisting the natural chaos and just start to follow the fundamental principles of trading, the internal war ceases, and the path towards mastery of this craft begins.