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How To Overcome Fear in Forex Trading

I started my trading journey in 2005. Although I was introduced to trading by a large marketing company that promised to properly educate its students in all things related to trading it became apparent to me that the training that I was receiving was very basic, and that many of the concepts that I was learning were not even correct!

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The Easy Way to Learn Forex Trading

I, along with many other folks, would meet together a couple of evenings each week and share the bits of knowledge that we all somehow stumbled upon by our own research. Believe it or not, there was not much information on the internet about currency trading, and what information there was, was not very helpful to new traders. We were very determined to learn how to trade, and we would dutifully show up and share with the group things that we had discovered on our own. We were taught more or less how to momentum trade on 5-minute charts using moving average crossovers. It didn’t take long to see that strategy was very flawed. I am here to tell you that 5-minute charts have NO momentum! We discovered indicators one at a time and would present them to the group, hoping that somehow that indicator would change our trading. Over time we joked that we were the indicator of the month club. I quickly lost hope in indicators, as they continually got us into losing trades.

All indicators are lagging in nature

They have no predictive value whatsoever. Sure you can slow them down, and even apply them to larger timeframe charts, but that requires employing a much larger stop loss on virtually every trade. Not a great trading strategy either. Still, I woke up every morning a couple of hours before I had to leave to my real job as the owner of a graphics company and face my trading computer, knowing that the odds were definitely not in my favor when it came to trading. I used to tell my wife that I felt like I was being greeted by the Grim Reaper every time I sat down to trade. It seemed like he wanted to be my constant companion. As lonely as trading was, I did not want his companionship. Something had to change in order for me to continue trading.

Well, something did change in a big way...

I Overcome my Fear of Forex Trading

Forex-Trading-Without-Fear imageI sold my business and home and moved to a different state. I had enough residual income that I was able to devote a couple of years to full-time trading. Just before moving I started to intensely study Elliott Wave and Fibonacci measurements. Through very deep study of Elliott Wave patterns, I began to recognize specific movements within the charts that tended to repeat themselves over and over again. Through proper application of Fibonacci measurements, I was learning how and where to expect the price to change direction. I studied historical price points and moves and started dropping off the indicators that I had tried so hard to rely on. I slowly eliminated all of the technical indicators that I had relied on and started to trade naked charts based on price movement. It was very liberating to no longer depend on lagging indicators and moving averages. I now set very precise exit targets, meaning I always look for stops first. Once my stops are in place I then find the very best entry base on the stop, usually well under 10 pips in total. A typical trade will put at risk perhaps 12 to 15 pips, as you do need to account for the spread, and we generally get into trades a couple of pips early and may push our stop a few pips as well. A potential trade with an actual stop loss of more than 10 pips better have a great look to it, or we simply pass on it.

Fear and Greed Trader

We have all heard many times that the markets are driven by two emotions, fear and greed. I actually believe that statement to be pretty inaccurate. I have mentored a lot of traders, and I do not see greed play into their trades hardly ever. If it does, they are true gamblers, and would probably be better off taking a nice vacation to Las Vegas and gambling all their money away. Either way, you are going to lose your money, but at least you get a nice vacation out of the deal if you go to Las Vegas, rather than having to sit in front of your computer watching your account blow up in slow motion.

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What I see in most traders is fear, almost exclusively

They are trading with a loser’s mindset, hoping that maybe things will start to turn around for them. As a trade entry approaches their fear heightens, their heart rate quickens, and their palms start to sweat. By some minor miracle they caught the right side of the move, but first it goes against them by a few pips. Fear is elevated for each pip the trade moves against them.

The trade then starts to move in their favor, and slowly their fear becomes hope. Most traders have just one true hope at that point. To break even! Some are even promising themselves that they will never trade again if they can just get their money back. If breaking even is the best you can hope for you need to reboot your brain.

most-traders-in-fear imageThen another small miracle happens. Your trade breaks into profit. Is that really happening? Are my eyes deceiving me? This is the point where greed is supposed to kick in. The gambler is prepared to ride this rocket all the way to the top, even though he has no idea where the top might be. No reason to take some profits. Surely this is the big move he has been waiting for since last month. He’s all in. Damn the torpedoes. All of the sudden the market reverses course and stops him out in a net loss position. Worse yet, he ain’t gonna let no stinkin’ chart do that to him. He moves his stop deeper into loss. Then he finds a logical turning point and doubles down. Ask the market if it cares. It doesn’t even know he exists. So much for gambling. I tried to warn him that he could have had a free vacation in Vegas. If only he had listened. Have fun explaining this one to your wife. On the other hand, most traders go into “dope” mode. Logic has left the building.

They are not emotionally equipped to handle success. Rather than following a very logical trading plan of knowing that you are protected by a very tight stop, knowing exactly where to take some incremental profit and put it in your account, moving your stop to protect your winning trade, taking additional profits where the charts tell you to, you turn to a bowl of emotional mush. There is a saying in life that you get what you think you deserve. Ouch. Take a deep breath. Learn to relax. Control your emotions. Remember that you have a logical and manageable stop in place. Consider your stop your very best friend, not your nemesis. It’s vital role is to preserve your assets in the event you are wrong, and to protect your profits in successful trades. So choose your friends wisely, Hopium and Dopium, or your Stop. You can’t have both.