3 Tips to Help You Keep Your Cool in Forex Trading

Updated from its original posting on 18-10-2010

To become a successful trader, you have to stay rational and emotionally detached.

Many novice traders ride an emotional rollercoaster, feeling on top of the world after a win, but down in the dumps after a loss.

forex frustrationIn contrast, most professional traders stay calm and relaxed even after a series of losses. They don’t let the natural ups and downs of trading affect them emotionally.

As a winning trader you’ll want to do the same – stay composed and as unemotional as possible. We know it can get tough. Even the seasoned trader will lose composure and let emotion take charge. It’s a natural thing – many novice traders would start doubting their methods and decisions.

One the other side of the coin, when things are going well, it’s normal to feel excited or like a supreme being. Nothing can stop me now, I’m invincible! It’s this overconfidence that can certainly lead to problems. Any time things start to go your way, you feel safe, and you think there’s a little more room for unnecessary risk. Your euphoric state clouds your judegement and you figure that things can only get better. When times are golden, it’s very easy to forget about your plan or process.

This emotional roller coaster most often finds a home with the novice trader.

A novice trader is more likely to risk too much capital during a single trade and risk management goes out the door. If that “big risk” turns successful, blissfulness follows the victory. But with a disastrous loss on that “big risk,” the joy transforms into a feeling of utter failure.

The key to curbing, or at least minimizing, your losses is proper risk management. Smaller loses are definitely easier to stomach than those monster losers.

Remember that trading is not like online poker or gambling – it’s a business. And as the person making the decisions, you don’t want to run the business on pure emotion. You want to be objective in your decision making. This objectivity will make it easier to examine and consider new trading opportunities as they become available.

So, at the heart of the issue, what can you do to control your emotions?

1. You can’t win ’em all.

For one, understand that you’ll win some and you’ll lose some. At times you’ll be profitable in your trading, and at other times you won’t be. Coming to grasps with this simple fact will definitely help.

2. Keep a buffer.

Second, trade with enough money to allow for a buffer when those losing trades come. Be ready to handle the losses, because they WILL come! That’s just how the market works.

3. Don’t party too hard!

Third, try not to have a house party after every win. Higher highs are great, but a stretch of losers following your wins will put you into those lower lows. And they’re no fun at all.

Emotional stability, matched with proper risk management, is the name of the game.

Trading can cause you to become emotional and lose control (and money), but the most successful traders can minimize those peaks and valleys, resulting in a calm and rational trading mind. That kind of mind ultimately leads to increased odds of financial success.