LOGIC WINS OVER IMPULSE
Attaining financial success is the ultimate aim of a Forex Trader and is definitely the most important motivating factor too. To be successful in Forex Market, plans of making money or monetary goals surely help a trader to remain focused. BUT when this desire of making money converts into greed, it becomes an enemy to a Forex trader. It is this greed which constantly forces a trader to become emotional and take impulsive decisions which in turn results in huge losses.
A trader has to control his emotional impulsive behavior and think logically before jumping into a trade. When a trader sees lots of things happening around, a high impact news event for instance can actually force him to react quickly without thinking logically. For example if there arises a situation in a market where the trader could make a profit of $100 now or a $300 in another 2 months, an impulsive trader would be happy with the $100 as he fails to think about the larger profit he would make in the longer run. Impulsive traders are thus in a rush to make profit as soon as possible. They fail to plan their strategy or follow their trade plan and end up as bad market timers. Market timing is very essential for the successful execution of a trade.
Everyone enters into a trade expecting to win. As long as you can control your trading decisions, it is fine. But most of the time, there arises a rush in the minds of the traders when they are over confident about their win. When you are close to winning or making money, your emotions tend to make you impulsive. Always keep in mind that one loss due to a wrong decision can be a huge one and you could end up losing all your profit. With that being said, does logical thinking traders always make profit? The answer is No. Logical decisions might not always yield profit, but the point is that a logical trader would know where he is heading to and would plan to limit or deal with the loss depending on the trading scenario.
It is just the excitement about making money quickly that tends to make you impulsive at times. Being logical while trading yields the results you wish to attain. Your profit rate increases with time as you gain experience through logical thinking and by doing the right analysis at the right time.
So, how do you let your logical thinking win over impulse? It is very simple. Be a disciplined trader. Yes, you got it right. Follow a disciplined approach to trading in Forex Market. It is not the impulse but you who should be controlling your emotions and there by your decisions. Study the market and do thorough analysis. Gain the required information through training if needed and overcome the fear of the unknown. When you have uncertainty in your mind which mainly arises due to lack of knowledge and understanding, you are more likely to get emotional and take impulsive decisions expecting to make huge profit quickly. And the result turns out to be an unexpected and unwanted loss.
In Forex trading, it is your consistent planned and managed moves that help you manage risk, reward and loss. A particular point in time that made you think you would win the trade should not make you take the wrong decision. You have to be patient in such scenarios and change the way you think if you really want to evolve to higher levels as a trader. A few things to consider if you feel that you end up entering into impulsive trades frequently:
Keep calm and be patient when you trade. When you feel you are too much bothered by the market movements, relax and take a break. Don’t be in a rush to make quick profits. Think of all the scenarios and ask yourself questions before reaching into a conclusion.
Set up a risk percentage
Follow the 2% rule or any percentage that works for you. Make sure you don’t risk beyond the set percentage. With the risk amount set, you have already made up your mind that you are fine with loosing that amount and hence you will be well prepared in advance.
Adhere to the trade plan
Keep practicing and with your experience come up with a trading plan. Follow this trading plan no matter what. Unless and until your trading plan asks you to enter into impulsive trades don’t do it. The key is to follow the rule you set.
Get rid of the fear
Learn and gain knowledge about Forex market to understand and analyse the market. This way you can get rid of the fear of uncertainty and the fear of loss. When you learn, you will feel confident and that will stop you from taking up wrong decisions. In addition to this, knowledge also helps you to be prepared to deal with the risk or loss associated with the trade.
Be a disciplined trader
When you follow your trade plan and the guidelines mentioned above, you are consistent, you automatically become a disciplined trader too. Maintain that pace and don’t get carried away by your emotions. When you learn to control your emotions, you learn to stop your emotions from controlling your trading decisions and gradually you become a more refined trader.
As you already know Forex market is the most liquid and largest financial market. Hence, there are lots of market participants and things are always uncertain. Always keep in mind that you can gain more in this market and you can lose much more too. When you are entering the market be ready to face the risk and be confident. The only way you could gain the confidence is through knowledge about the market and by following your trading plan consistently. This way you will be able to control your emotions and avoid impulsive decisions. Let your logical thinking win over impulse and there you go, you will find yourself one step closer to success.