The 4 basic human weaknesses in trading: Greed, fear, impatience and pride. How do these emotions cause so many Forex traders to lose money? Let’s examine the ways.
Greed
Greed causes poor traders to increase the size of their trading positions the moment they’re “in the money” (in a winning trade). This often results in these traders having the largest position size trade just before the market turns in the opposite direction. As a result, this causes them to suffer large losses.
Fear
Fear makes people avoid entering into good trades because they don’t know what they’re doing. Heard of the phrase “buy low, sell high”? Unfortunately, many traders think that this is true. The profitable traders however, know that a more accurate phrase would be: “buy high, sell higher”.
Fear is often the result of not knowing what one is doing. If you have a proper, reliable trading system, fear shouldn’t be in your trading vocabulary.
Impatience
The opposite of fear, impatience leads people to enter into trades when there are no clear trading signals. Needless to say, most of these impatient trades usually turn out to be unprofitable.
Pride
This is very possibly the worst trading weakness of all! Pride makes a trader hold on to losing positions with the false hope that the position will turn around in his favour. Winning traders are humble, and aren’t afraid to admit that they’ve made a mistake when they lose money. After all, no one can be right all the time!
Unfortunately, many losing traders refuse to admit that they’re wrong, and often lose money to pay for their pride.
Summary
Understanding the effects of these emotions is crucial before one can be a consistently profitable trader. Use this knowledge as a tool to make money from ignorant traders, and don’t fall into these traps yourself!
By: Harold Hsu
Posts Tagged ‘Hsu’
Forex Education – Identifying The 4 Human Weaknesses
January 6th, 2010Forex Trading Education – How To Trade Price Consolidations
October 29th, 2009
Trading on price consolidation breakouts is a popular choice among Forex traders. In this article, I will present to you one of the most effective and simplest ways to trade consolidations.
What Is A Price Consolidation?
Price consolidation occurs when there is no obvious uptrend or downtrend in short-term time frames. Ranging markets are not considered to be consolidating because prices are still fluctuating up and down. In a true consolidation, market prices don’t fluctuate and typically stay within a 10 to 15 pip range.
What Time Frames Should I Trade?
Consolidating prices don’t usually last very long. That’s why you’ll usually trade using intraday time frames (i.e. hourly charts or minute charts). Occasionally, daily charts may show flat prices as well… but these are more the exception rather than the norm.
How Do I Trade It?
Most people enter into a trade when prices break out of the highest price (or lowest price) of the consolidation. If prices break upwards, they buy. If prices break downwards, they sell. The decision to trade on breakouts is based on the assumption that the momentum of the break will be strong enough to push price further in the same direction.
How Effective Is It To Trade Breakouts?
In my experience, breakout trading can yield rather consistent profits. This is because they usually follow through. The hard part is deciding when to exit your trade once it’s in-the-money, because breakouts sometimes reverse directions quite quickly.
What Should Be My Profit Target?
Usually, a profit target of 30 pips is good enough. Sometimes, you may want to try for 50 pips. I don’t usually hold breakout trade positions after I’m in-the-money for 50 pips because then the price action will usually turn erratic.
By: Harold Hsu
