How to Stop Giving Back Your Profits When Trading Forex

How could I have just done that?” If you’ve never yelled that to yourself in fury, you’re not a Forex trader. Even the most intelligent Forex trader has done some really stupid things when just starting out. To understand what went wrong, and why, it helps to understand what goes on inside your brain when you make decisions about money. When you understand it, you can stop making the mistakes you are wired to make.

Forex traders are often their own worst enemy. Everyone knows that beating the market is nearly impossible, yet just about everyone thinks they can do it.

How many times have you done any of these? Be honest now!

-Watched a trade go bad, hoping and willing it to turn around, until you have lost more than 10% of your equity?
-Closed out a trade and re-opened immediately in the opposite for an ultimate loss?
-Seen some price action and immediately jumped into the trade?
-Traded without a stop loss
-Placed a sure trade with 10 times the lot size you normally trade because you are sure it is going to be a winner?

Traded with more than 5% risk to your account?

If you have never made any of these mistakes, congratulations. However, these and other similar mistakes is why 95-98% of new Forex traders ultimately fail. 대여계좌

The thing is, our brains were originally designed to get more of whatever would improve the odds of survival, and to avoid whatever seems risky. The investing brain is far from the consistent, efficient, logical device we would all like to pretend it is. Even Nobel Prize winners fail to behave as their own economic theories say they should. Emotion gets in the way. We are wired to feel the rush of pleasure when we might make money and panic when we are losing it.

A lot of information about how everybody’s brain works has been determined through neuro-economics, and understanding those basic lessons will make you a better trader.

1. A momentary loss or gain is not just a financial or psychological outcome, but a biological change that has profound physical effects on the brain and body. Financial losses are processed in the same areas of the brain that respond to mortal danger. When you lose, your heart races, but you also get negative emotions like disgust and guilt. When traders are disgusted with their own blunders, their natural aversion to taking a loss finally breaks. Instead of grimly hanging on as usual, they now become desperate to get rid of any other losing trades. Desperate people do desperate things. That is why a market will often crash faster than it goes up. Traders tend to buy in dribs and drabs, but sell in one fell swoop. Many charting patterns are based on that trading psychology.

2. The anticipation of making money feels better than actually making the money. The brain is more aroused when you anticipate a profit, than when you actually get one.This drives illogical trading such as is often experienced by amateurs. They close down losing trades and immediately chase the trade in the opposite direction, or open illogical trades based on hope rather than a sound analysis and prediction of success. The feeling of anticipation is very strong, lighting up the brain much stronger than when a trade is closed for a profit. This drives illogical trading.

 

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