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Online forex trading is by nature a highly emotional activity that can ignite any combination of emotions including stress, excitement, and anxiety. Forex trading on emotion is one of the greatest downfalls of even the most successful trader, as once the trader begins to trade on emotion and ignore the facts, their trades become sporadic, unplanned and impulsive.
Top Tips on Eliminating Emotional Trading
Trading forex should be a controlled activity in an environment that is highly volatile. An accomplished trader uses a range of trading tools to anticipate market movements, and may even closely follow forex news depending on their preferred analytical strategy.
Accomplished traders also create solid trading plans that are designed to see them through even the most tumultuous market environment. The plan is tried and tested in a demo trading account until it is considered perfect in the eyes of the investor.
Being able to persevere in the eyes of a trading storm is another key to reducing emotional trading. Essentially, an ‘unemotional’ trader will endure a volatile trade even though they know the odds are stacked against them. They will be confident that their tried-and-tested trading plan will help them to plough through that particular trade and come out the other side relatively unscathed.
Finally, one of the best ways to avoid forex trading on emotion is to place stop loss and take profit orders. These are predetermined orders that indicate, in advance, when you are going to exit the market. They ensure that your trade automatically closes before its price drops too far, or before there is a risk that a positive trade could take a turn for the worse.
Trade on Emotion at Your Peril
As previously mentioned FX trading is a fast-paced and highly volatile activity that can easily ignite any number of emotions, from fear to greed. When you are in the midst of an exciting trade it is all too easy to persuade yourself to keep going in the hope of enhancing the number of pound signs entering your forex trading account. However, as soon as these thoughts begin to enter your mind your perception of the market becomes contorted and your trades, therefore, become haphazard.
Conclusion
For this reason, it is strongly recommended to follow the above tips closely in order to reduce the chances of FX trading on emotion and increase the chances of making a profitable return on investment. Any successful trader knows that trading through fear or greed is the easiest steps towards forex trading losses.
