trading psychology

The Best and Worst Forex Trading Strategies

The Best and Worst Forex Trading Strategies

Strategies in Forex market operations are a fundamental part of being able to achieve success, since without one, you will find yourself adrift and simply gambling with your money.

 

Having a strategy provides security and discipline. Finding the perfect strategy is not easy, it requires tests and time to be invested. Of course, just having a strategy does not mean that you are assured of success; on the contrary, using a not-so-good strategy can make you lose a lot of money. Next, we will explore various strategists who, after being tested and analysed, can be classified as bad or good strategies.

Please note that this is only a very brief overview, to see in-depth analysis and education, you will need to find our writings where we discuss specific trading techniques.

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Normally when discussing the different strategies available in the Forex market, they focus on a specific trading method that unfortunately is nothing more than a facet of a complete trading plan and does not represent the entire negotiation process itself.

This leads us to wonder: How do I know how good a Forex strategy is? Well, the answer lies in the fact that if the strategy is advantageous and consistent then it is good.

 However, you must have in mind other aspects of the strategies so that you’ll make sure that you are following the right path.

– Position’s size

– Risk Management

– Ways to exit a trade

A good strategy will depend massively on the type of trader that executes it, since the trader has the responsibility to understand his personality as a trader obtaining from this self-study the right amount of  knowledge to find the best Forex strategy that can adapt to its needs.

 

Therefore, we will focus on simple, basic and generic strategies that adapt to any type of trader. Here at The Doji Trader, we believe that psychology and personality play a huge role in the success of any trader, if you would like to find out more information on this, please click here.

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By using this strategy, you gain an advantage in the 60-minute time frame when you enter the market. The currency pairs that are usually traded using this technique are EUR / USD, GBP / USD, USD / JPY and the AUD / USD.  

 

To make good use of this technique, you must make use of an impulse indicator of 100 pips, as well as indicator arrows; tools you can find in MetaTrader 4.

Buying with this Strategy

The pips indicator will give you the signal when it is the right time to use it, it will be when the Momentum 100 pips indicator activates a buy signal and the blue line is ready to cross the red line from below. Once that is ready, the stop loss should be placed just below the red line of the indicator. Once these steps have been followed, the trade can be closed after 30 pips.

Now, if you want to sell, then you will have to enter a short position just at the moment when the 100 pips Momentum indicator activates a sale signal when its blue line crosses the red line from above and the Indicator arrows proceed to give a red arrow sign.

 

Finally, you must place the stop loss on the red indicator line and once this is finished, you must proceed to close the operation at the moment when the indicator arrows give a green arrow signal.

The purpose of this strategy is to capitalize on some unique opportunities to be obtained through the additional volatility obtained when London opens. Despite being a very specific technique, it is also very good. It can be used at any time, especially when the price drops sharply in one direction, it also allows you to return from a very strong support / resistance area.

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Although most currency traders prefer to do their intraday trades, since market volatility generally offers more positive opportunities in narrower terms, usually the weekly currency trading strategies can provide more flexibility and stability.

For example, a weekly candlestick can provide you with a lot of market information. This contains five daily candles and changes that give visibility to trader on the real market trends. Then, all weekly strategies are generally based on lower position sizes thus avoiding excessive risks. 

 

 In order to use this strategy, the use of the exponential moving average indicator is used. Then, the last daily candle of the previous week must be closed at an objectively higher level than the exponential moving average value. Once this happens, you should look for the moment at which the maximum level of the previous week is broken, then proceed to place a purchase order in the closed H4 candlestick, considering that it must be at the level price level broken.

These types of strategies are useful as most of the breakdowns do not usually become long-term trends. Therefore, a trader who uses this type of strategy has the objective of obtaining an advantage of the tendency of prices to recover both in the maximums and in the minimums that were previously established.

 

These are considered the best Forex trading strategies, because they generate a lot of confidence among traders because of their high success rate.  

In all types of markets, we will many techniques that are not as feasible or advantageous as others. It is important to keep in mind that if we find offers from people online, or many trading ‘miracles’ that sound too good to be true, there is a high probability that it is actually too good to be true…

 

Below you can find some strategies that we do not recommend when trading.

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This strategy is very popular among beginner traders. It is a scam and only used by inexperienced traders and charlatans, it is unfortunate that so many will blow their whole trading accounts by following this. The plot of this technique is based on chasing your losses by subsequently adding larger operations to your already losing position in an excessive way.

It is well known that the sensation when using scalping is very good, you are the boss and trade expert. 2 pips here, 3 pips over there and you feel so excited that adrenaline can be savoured. But as on many trading accounts, you will find yourself at a disadvantage due to the spread. To be more specific, let’s see it this way: when a winner of 4 pips is hit, the market is in the duty to immediately move 5 pips and thus cover the cost of its margin / commission. This means that the spread is consuming 20% of its profits and is also amplifying its loss just before the price has moved.

 

For this same reason, it would need to beat the market by a very wide margin in order to counteract the spread that corresponds to each operation. Although it doesn’t seem like a significant loss, it will cause this minimal statistical disadvantage to deactivate your account.

However, it must be noted that we believe scalping to be one of the most effective and useful trading strategies, and it is so popular among both professional and retail traders. It is not an easy task, but if you feel up to the challenge, you can begin your path to being a great scalper right here. If you wish to scalp for profits regularly, but feel that the high spread of your account just renders your time unworthy, then why not look on our broker reviews to find out which broker is the most cost-effective?

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Knowing that not all currency pairs behave in the same way is to be a mature and responsible trader, however, not everyone manages to be that way. Each currency has its own peculiarities, so each one will move differently, and the inhabitants of each nation will sell and buy their coins depending on their territorially political and economic situation. Therefore, decisions are made every day that will affect the movement of a particular currency in one way or another. So, this leads us to the conclusion that these types of practices (or strategies) should be used less times than recommended, there are many operators in the market who are dedicated to apply this strategy over and over again even if they don’t get results, either from boredom or despair and desire for quick success. It is critical and basic thinking, knowing that the idea of exchanging several pairs at once is a mistake and that it is best to concentrate on one and take care to study it properly.

 

Once you find a currency pair that really works for you and to which you can extract good profits, you can consider expanding your sales and purchases. Trading is often about finding where you have an edge on the market and zoning in on that specific area.

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Summary

It is always good advice to take to know that the fact that a strategy works for another person does not mean that it is equally successful for you. However, there are strategies that are usually much more general and that usually work for a good percentage of the population, which means that trying them is not a bad idea. On the other hand, if we are in front of a strategy that seems to be a fraud and that has several negative aspects, it would be best to stay away from such strategies, to avoid unpleasant moments and significant losses.

 

But the most important thing is that any strategy that you have not used before, you should try it for a while, without risking much of your capital, in order to draw your own conclusions and even customize it.

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This does not constitute investment advice or personal recommendations as your specific financial circumstances have not been considered. No warranty is given in regards to the accuracy and completeness of information. Past performance is not an indicator of future results.

Posted by Alex in Lessons

Trading the FOMC Meeting

Trading the FOMC Meetings

There are several fundamental news and economic events that can have a huge impact on the forex market, and the FOMC meeting is one of them. The anticipation and speculations in the days leading up to the meeting and the fallout thereafter cause so much volatility in the market, as traders and analysts react to decisions made in the meeting.

It is such an important event that even pure technical traders look forward to it and adjust their trading plan accordingly — temporarily stay off the market during the press conference where the key decisions in the meeting are announced or formulate strategies to benefit from the increased volatility during the period.

Before looking at how to trade the FOMC meeting, let’s find out what the meeting is all about.

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FOMC is the acronym for the Federal Open Market Committee, which is the branch of the U.S. Federal Reserve Bank that supervises the direction of the monetary policy of the United States. Members of the FOMC include seven governors of the board and five presidents of the Federal Reserve Bank.

Eight meetings are scheduled for the FOMC each year. The purpose of each meeting is of twofold:

1) Previewing existing economic data

2) Deciding the necessary intervention based on the economic data.

What Happens During the Meetings?

During the meeting, the committee deliberates on several issues about the U.S. economy and the global economy. The committee considers a lot of economic data, including the growth of household spending, job gains, unemployment rate, wage increase, inflation, and business fixed investments.

After carefully considering all these data, the committee decides on the Federal Fund Rate and money supply. Fund Rate is the short-term overnight interest rate that banks charge each other for loans and deposits with the Fed, and this rate dictates the medium-term and long-term interest rates. The Fed’s decision on money supply affects the sale of U.S. Treasury Bills and bonds.

Meetings are closed to outsiders, and only the seven governors of the board and the five Federal Reserve Bank Presidents are in attendance. Shortly after the meeting is concluded, a press conference is held, and the general outcome and the key decisions are announced. However, the minutes of the meeting are not published until three weeks after the conclusion of the meeting.

How do the Markets React?

Market reaction to the decisions reached during the FOMC meeting can vary dramatically, but it is generally based on the prospects of changes in the interest rates. The FOMC’s position on whether or not to intervene in the U.S. economy has far-reaching effects even outside of the US. Being the largest economy in the world, whatever affects the U.S. market also affects the rest of the world. Moreover, other central banks take a cue from their U.S. counterparts.

The Fed usually targets an annual inflation rate of 2%. So, depending on whether it wants to slow inflation or drive it up to balance out the money supply and ensure price stability, the FOMC may introduce policies to raise interest rates or lower them. In essence, the outcome of the FOMC meeting gives traders an idea of the official view of the U.S. economy.

Probably the most important indicator of the U.S. economic health, alongside the Nonfarm Payroll report, the FOMC meeting is keenly followed by traders all over the world. Many traders, especially the fundamental traders, make use of the FOMC decision to design a framework for their trading strategies.

Technical traders also pay great attention to the decisions of the committee because of the volatility it generates in the markets. Some technical traders tend to stay away from the market during the post-meeting press conference and when the minutes are published.  However, others love the increased volatility and formulate strategies to trade the event.

Decisions from the FOMC can have a direct impact on several aspects of the U.S. economy and the markets that rely on the economy. So, the effects can be felt in different markets or asset classes, including:

1) Forex markets

2) Bond markets

3) Equity markets

4) Commodity markets

 

Forex Markets

Decisions of the FOMC have a serious impact on the forex market because most of the major currency pairs have the USD as either the base or the quote currency. When the FOMC increases interest rates, the value of the USD increases because more foreign investors will be attracted to the U.S. economy. Conversely, when the interest rates are lowered, the value of the USD is likely to decrease.

Bond Markets

Bond markets are highly dependent on the prevailing federal rates. Bond prices and yields have some inverse relationship with each other and the interest rates. When the interest rates increase, bond prices fall, and yields increase. On the other hand, when interest rates fall, bond prices rise, and yields decrease.

Equity Markets

Interest rates affect the way businesses and consumers can borrow money. When interest rates are increased, people tend to have less disposable incomes to buy shares, leading to declines in prices. This is due to less demand for certain shares. When the interest rates are low, people can easily borrow money to invest in stocks, so stock prices often rise.

Commodity Markets

Commodities (such as gold, silver, and other precious metals), tend to have an inverse relationship with the USD. So, when the interest rates are low and USD is weak, those commodities tend to rise in value. Conversely, when interest rates are high and the USD is rising in value, the value of those commodities often decreases. Also, investors see those precious metals as safe-haven assets to buy when the economic outlook is looking gloomy.

Increases in volatility occurs during the FOMC meeting press conference, and when the minutes are released, may present some trading opportunities. Scalpers and day traders may formulate some strategies to benefit from the increased volatility that occurs around the time of this economic event.

However, trading during a period of increased volatility can also be very risky. If the price goes against your position, you can lose a lot of money. Even if you’re using a stop loss or a trailing stop, the price movement can be very dramatic that the slippage may be more than you can handle.

Speculation Prior to Meetings

In the weeks leading up to an FOMC meeting, speculation as to what the Fed’s decision will be is common, so more often than not, the market may have already priced in the interest rate adjustments expected from the meeting, by the time the outcome of the meeting is announced.

Unexpected Decisions - Implications

Implications of an unexpected FOMC decision is that the market reaction can be very swift and severe as volatility may increase significantly. It is often difficult to take advantage of the confusion, but if you have a good understanding of the dominating market sentiment and you are quick enough, you may be able to capture the quick price spikes that come with such surprises from the Fed.

While long-term traders may not be concerned with the price spikes that occur during this kind of economic events, they should also be aware of the fact that the FOMC decision can affect the long-term direction of the market. However, the actual effect of any adjustments in the interest rates may take time to manifest in both the economy and the financial markets. This is sometimes more than 12 months.

So, it is very necessary to take the time lag into consideration when analyzing any potential trading opportunity or making any investment decisions. Another thing to consider is the possibility of formulating a specific trading strategy for each FOMC meeting which can benefit from the price movements, irrespective of the outcome from the meeting.

You can combine the outcome of the FOMC meeting and a simple technical strategy to scalp the market in the minutes following the announcement of the FOMC decisions.

Use the 5-minute and 1-minute timeframes for this strategy and only for currency pairs with USD as the base currency. Here is what you do:

1) Put a 21-period EMA and a 100-period EMA on your chart and watch the direction of the indicators before the news release.

2) If interest rates are raised and the 21-EMA is above the 100-EMA, enter in favor of the USD and put a stop loss below the nearest support level. Then trail your profit very fast.

3) If interest rates are lowered and the 21-EMA is below the 100-EMA, enter against the USD and put a stop loss above the nearest resistance level. Then trail your profit very fast.

For currency pairs with USD as the quote currency, the opposite may work.

Final Words

FOMC meetings are among some of the most important events on any traders’ economic calendar. It is scheduled eight times in a year, and it’s where interest rate decisions are made. Its reports have some significant effects on the forex market, and the increased volatility that occurs during the event may present some trading opportunities. 

Want to find the best broker to trade with? Take a look at our top 3 brokers for traders in the United Kingdom here.

This does not constitute investment advice or personal recommendations as your specific financial circumstances have not been considered. No warranty is given in regards to the accuracy and completeness of information. Past performance is not an indicator of future results.

Posted by Alex in Lessons

How to Trade Fibonacci Sequence

How to Trade The Fibonacci Sequence

The Fibonacci sequence, which is the basis for the Fibonacci levels in Forex, was discovered by Leonardo de Pisa, an Italian mathematician. Nicknamed Fibonacci, Leonardo de Pisa was born in the year 1170 in the Italian city of Pisa. He traveled a lot with his father and lived with him in Bejaia, a Mediterranean port in northern Algeria, where he studied mathematics.

During his extensive travels, the young Leonardo learned the benefits of the Hindu-Arabic numeral system, and on returning to Italy in 1202, he documented his discovery in his famous work — ‘Liber Abaci’, which popularized the Hindu-Arabic numeral system in Europe.

 

In the book, he described a sequence of numerical numbers now known as the Fibonacci sequence of numbers.

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The Fibonacci sequence of numbers is a numerical series documented in Leonardo’s ‘Liber Abaci’. In the sequence, after 0 and 1, every number is the sum of the two numbers before it. Thus, the Fibonacci sequence looks something like this: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987, and so on.

 

As you can see, the sequence can extend to infinity. Looking at the numbers, you will observe that every next number is approximately 1.618 times larger than the preceding number — or the other way round, each number is 0.618 of the number following it. For example, if you divide 55 by 34, you will get 1.618, and if you divide 34 by 55, you will get 0.618.

With the exception of the first few numbers, dividing a number in a number in the sequence with the preceding number gives a fairly consistent ratio. From the example above, the ratio is 1.618, and its inverse is 0.618. This value, 1.618, is known as Phi or the golden ratio — it occurs in several aspects of life.

Apart from the golden ratio and its inverse, other ratios can be derived from the Fibonacci number sequence. For instance, 0.382 can be gotten from dividing a number by the number two places to the right — say, 89 divided by 233. Another important ratio is 0.236, which is derived from dividing a number by the number three places from the right — say, 34 divided by 144.

 

While you may find other ratios from the Fibonacci number sequence, when it comes to forex trading, the most important Fibonacci ratios are these four: 0.236, 0.382, 0.618, and 1.618.

Apart from its significance in Forex technical analysis and the rest of the financial world, the golden ratio (1.618), or its inverse (0.618), has been shown to appear frequently in every aspect of life, from biology and the natural world to fine arts and architecture, to all parts of the universe (even patterns of solar systems).

For instance, the ratio has been observed in the Parthenon, tree branches, sunflowers, rose petals, mollusk shells, Leonardo da Vinci’s Mona Lisa, human faces, spiral galaxies of outer space, and the ancient Greek vases.

 

One of the most famous examples of the golden ratio can be seen in the nautilus shell. The nautilus shell expands in a logarithmic spiral, which follows the Fibonacci ratio. Connecting the arcs with squares, or Fibonacci tiling, it becomes obvious that the sizes of the squares follow the golden ratio.

Obviously, one of the areas where the Fibonacci ratios are often applied is in Forex technical analysis, where they are used to mark price retracement and extension or expansion levels — the Fibonacci levels. Converting the ratios to percent gives the Fibonacci levels.

So, the 0.236 ratio becomes the 23.6 % Fibonacci level; the 0.382 ratio becomes the 38.2% Fibonacci level; the 0.618 ratio becomes the 61.8% Fibonacci level; and the 1.618 ratio becomes the 161.8% Fibonacci level.

Apart from the four levels — 23.6 %, 38.2%, 61.8%, and 161.8% — other levels are derived from different combinations of the four basic ratios. For example, 100% level is gotten from adding 38.2% and 61.8%; 123.6% is gotten from 100 and 23.6; 138.2% is gotten from 100 and 38.2; while 261.8% is gotten by adding 100 and 161.8.

 

Although 0.5 is not usually seen as a Fibonacci ratio — not technically true since 1 and 2 are in the Fibonacci sequence and 1 divided by 2 is 0.5 — the 50% level is added in the Fibonacci tools because it is a significant level in the Dow Theory.

Almost all trading and charting platforms, if not all, have some or all the Fibonacci measurement tools, which traders use to mark important price levels or timelines. There are several Fibonacci tools you can encounter on these platforms, such as:

·        Fibonacci retracement/extension

·        Fibonacci expansion

·        Fibonacci fans

·        Fibonacci arcs

·        Fibonacci channels

·        Fibonacci time zones

 

But Fibonacci retracement/extension and Fibonacci expansion are the most widely used Fibonacci tools.

Depending on the levels added, this tool can have two parts: the retracement part and the extension part. The retracement part consists of horizontal lines that indicate the 23.6%, 38.2%, 50%, and 61.8% retracement levels from the preceding price swing high or swing low, while the extension part consists of the -23.6%, -38.2%, -61.8%, -100%, -161.8% extension levels from the preceding swing high or low.

 

Obviously, the retracement levels show the percentage of the previous swing the price can pull back before it starts moving again in the trend direction. The extension levels, on the other hand, show the percentage by which the price is extending beyond the preceding swing’s high or low.

You apply this too in a trending market when a pullback starts. To pick this tool from the MT4 platform, click on Insert and click on Fibonacci from the dropbox. Then, click on Retracement. On the chart, place the first point on the price swing high/low, from where you want to start your measurement, and drag it to the most recent swing low/high before the current pullback.

 

So, in an uptrend, you start from a swing low and drag to the most recent swing high, while in a downtrend — as you can see in the EUR/USD chart below — you start from a swing high and drag to the most recent low. In the chart below, the pullback has reached the 50% retracement level.

A screenshot portraying a 50% Fibonacci retracement.

The expansion tool functions just like the extension levels, in the retracement tool in that it projects where the price can get to after a pullback. However, unlike the extensions levels that project how far the price can extend from the preceding swing low/high, the expansion tool measures the price expansion from the pullback’s high/low.

Just like the retracement tool, it is used in a trending market. You apply the expansion tool when the pullback has completed and the price has resumed in the trend direction. The tool has three points that must be fixed at the starting swing high/low, the recent swing low/high, and the current pullback’s high/low, as the case may be. To get the tool in an MT4 platform, go to Insert > Fibonacci > Expansion.

 

Take a look at the EUR/USD chart below. The price is in a downtrend, so the three points of the expansion tool are attached at the starting swing high, a swing low, and the highest point of the pullback. We didn’t use the most recent swings and the current pullback, because we aren’t sure the pullback is over and also to show the reactions at the expansion levels. Note the reactions at 50%, 78%, and almost 100% expansion levels.

A screenshot portraying a Fibonacci retracement.

There are other Fibonacci tools, such as the Fibonacci fan, arcs, spirals, channels, and time zones. All the tools are based on the Fibonacci ratios. The Fibonacci fan, spirals, and arcs are used to project spatial price points and levels, while the Fibonacci channels project price direction. With the Fibonacci time zones, you may be able to time the market cycles.

The Retracement Levels

You can use the retracement levels to anticipate where a pullback may end since you can see the levels before the price gets there. Depending on the direction of the trend, the 38.2%, 50%, and 61.8% retracement levels can act like a support or resistance level where the price gets to and reverses.

In an uptrend, the retracement levels can serve as support levels where a pullback may reverse, while in a downtrend, they can serve as resistance levels. Thus, they can be used to estimate where to place stop loss orders. Some traders also use them in breakout trading.

 

From the picture, you can see the price is at the 50% level and may reverse from there to continue the downtrend. 

A screenshot portraying a 50% Fibonacci retracement.

The Extension and Expansion Levels

These levels also serve as potential support or resistance levels, depending on the direction of the trend. In an uptrend, they serve as potential resistance levels, and in a downtrend, they may become support levels. So, you can use the extension or expansion levels for your profit targets when trading.

Final Words

The Fibonacci sequence is the basis for the Fibonacci levels in Forex trading. It was described by an Italian mathematician Leonardo de Pisa, and its derivative, the golden ratio, seems to occur in several aspects of life apart from Forex. In Forex, the levels derived from the Fibonacci ratios help to identify potential support and resistance levels before the price gets there.

This does not constitute investment advice or personal recommendations as your specific financial circumstances have not been considered. No warranty is given in regards to the accuracy and completeness of information. Past performance is not an indicator of future results.

Posted by Alex in Lessons

An Overview of Trading Psychology

An Overview of Trading Psychology

In the world of trading and within each known market, such as Forex or the stock market, you will find that there are several things that each trader must consider and must study in order to become an expert.

This type of knowledge needed ranges from the definition of the market to work itself, operation of the different platforms used competition, economy, and adequate amount of capital to invest and, above all, what type of market will you choose to start.

But there it is a very important aspect that most traders often ignore because they take it for granted; the trading psychology.

It is necessary to understand that the success of any type of business or investment will always depend on us and of course on the way in which we handle a situation or execute each of our thoughts, therefore, psychology is fundamental in the commercial world, in all markets.

The trading psychology is undoubtedly the most important discipline that must be handled and studied by any aspirant to trader in any market, such as Forex trading. In the world of Forex psychology is necessary; this type of investment is attractive for many people around the world due to its ease and comfortable platforms to use. However, the use of psychology becomes a main step to manage if you want to be a very successful trader.

Now, a good advice to start the issue is that: self-confidence and emotional control are the fundamental pillars that are responsible for operating the psychology of trading and of course, manage your emotions, leading to success.

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To begin shaping the aspects that make up the trading psychology, let’s talk about certain elements that we will call enemies of the mind. The enemies of the mind are nothing more than different emotions that give a negative result or effect on the trader’s mind. These are enemies that you must know well for you to have the tools to face and defeat them.

Fear

 

The first enemy is fear. We define this as an unpleasant sensation accompanied and loaded with anxiety or apprehension that is weighed in the person due to the presence or anticipation of the danger. When there is a trader operating, this feeling comes often; it is one of the most common enemies of the mind that the trader will face. This always happens when you are an inexperienced trader and you are starting. Despite being a normal feeling, many times it can get out of control and nobly affect any strategy the trader has.

Fear can also appear in experienced traders, especially when they get a couple of losing operations, which lead them to feel overwhelmed by fear. The important question is how to deal with it? This can be accurately answered; basically, the best way to deal with fear is to move away from situations where you risk more money than you have available, since with caution, fear disappears.

Euphoria

Although normally this feeling is characteristic for being a good thing, since it gives the trader a lot of confidence and security in themselves and their strategy, it can also be very dangerous, simply because it can get out of hand and in that case we would find a trader who is overconfident and can make decisions that will bring them regrets in the immediate future. This enemy usually makes presence after the trader gains a great amount of profits or nails their entry. Statistically, the greatest commercial losses occur after a couple of quite lucrative victories, so a great trader must not only hit these abnormal profits from time-to-time, they must control their mentality so that they can safely exit with these profits and not damage their account in the long-run.

Now, to be able to solve this, a good measure is to concentrate on what you are doing, always remembering that everything in the market will always be about probabilities and of course the sensible decisions made by you. Like the previous advice, the best thing you can do is not to risk more money than you have to spend. There have been circumstances where after traders largest winning streaks, they have been given larger budgets, and blown everything. New biological discoveries into the “risky highs” of trading from John Coates, a trader turned neuroscientist, argue that due to the euphoria and the chase of new highs and abnormal profits, traders are at higher risk of losing their profits due to the increase in testosterone, and so giving larger budgets is counter-intuitive in reality. Instead, firms should give their traders a cooldown period of three weeks so that their body can normalise until their “biology resets”. 
Source, Reuters. Scientist, John Coates.

Panic

Of all the feelings, panic is one of the most curious enemies, is defined as a sudden feeling that comes loaded with fear in excessive amounts, is usually sudden and overwhelming, in addition to uncontrollable thoughts or action. Due to its characterization it can feel a bit like fear, however it is much worse, since it is paralyzing and much more irrational.

The trader must always be alert and active, not only to monitor their business, but to prevent violation of him/herself from going against their rules, or trading without caution. This is considered an enemy that approaches silently in different situations, in novice traders and professionals alike, amid situations where there is a lot of pressure, or when they witness stories of how other people are having or had significant losses in the market. Another event in which it can occur is in periods of market volatility.

Of all the hindering feelings, this is the worst, because a panicked trader will make many mistakes and it will find themselves unable to perform a logical analysis of the situation in which he finds himself. There really is no specific way or infallible advice to avoid the appearance of this feeling, usually the possibility that this type of situation occurs decreases as the trader gets experience. But something important is not to believe everything that is heard or read about other people’s experiences and remember that everything is about probabilities. Many traders now believe that the main cause of profit and loss is your mentality and psychology as a trader, not just the analysis.

Here are some quick tips from us to stay on top of the negatives caused from psychology:

·    Try hard to find the right trading strategy for you and stick to it. You will be able to accomplish this by studying other trading strategies before and after you choose it 

·       Manage your risk, always remember that.

·       Know yourself, through the study of your emotions and been aware of your reaction to different situations.

·    Stay organized. Taking care of this point can be a bit difficult, but it is essential, a good idea can be to have an operations diary where you can track your progress and thus study the correct and incorrect movements made by you, this being a measure preventive So you can have a kind of guide on what to do and what not to do in the near future.

·   It is never too early or late to walk away. Many traders leave the screen once they earn or lose a certain amount of points a day, why not give this a try? Consistency has been linked to a more healthy mind.

Summary

The best way to deal with any situation that triggers emotional problems and unwanted feelings is having a logical method at hand to trade with a minimum margin of error. And the best way to harvest it is by studying the market in which you have decided to operate more thoroughly.

This does not constitute investment advice or personal recommendations as your specific financial circumstances have not been considered. No warranty is given in regards to the accuracy and completeness of information. Past performance is not an indicator of future results.

Posted by Alex in Lessons