Most of us start trading for the simple reason that we want, or need, more money than we have now. Those of us without a profession, or trade, that provides income stability now and in the future, see FX as a means to supplement our current wage, or provide a steady flow of funds to prop up an ailing pension in our sunset years. Therefore greed, to a greater or lesser extent, is the key driving force in our approach to trading. Some of us are greedy, simply because that’s the way we are. Others are looking for small, steady, and regular increases in their bank accounts; they have no great wish to become millionaires, but their greed (whilst not voracious) will still temper their approach to trading. Greed makes us break our Money Management rules. If you’ve just had a couple of home runs, you’ll maybe just up the risk to 5% for this next trade. You’ll justify this by saying to yourself – ‘the trend still looks strong, nothing seems to have changed, I might as well let this move add another decent gain into my account and then I’ll go back to my 1% rule’. Trust me, this is the moment when the market teaches you the BIG lesson. It never seems to happen when you’re going along, making steady gains. It ALWAYS happens at exactly that moment you let greed cloud your judgment. Greed makes you change your Take Profit (TP) target, or remove it altogether, in the hope of making more pips. It also makes you stay in a trade when you’re within a few pips of the original TP just to squeeze a little more out of that trade. Whatever your dreams, whether it’s a top-of-the-range Ferrari or a new mid-range family car, the only thing that FX must deliver, for you, is money. For trading to deliver money you HAVE to win more than you lose. Therefore, along with greed, the other mind-killer is fear. Fear is the emotion that makes you jump into a trade, despite the fact that your system hasn’t quite delivered a signal yet. You’re afraid of missing out on all those extra pips that an early entry will give you. You stay in bad trades for fear that if you get out now, the trade will turn out right in the end. Fear of loss makes you move your stops further away while a trade is going bad. Fear of giving pips back to the market makes you get out of winning trades too early. Fear of missing out causes you to take every signal on every pair just in case this is the big one. Fear then stops you actually taking all that the market is offering because you close too early, again. Once you start to lose the fear of loss, you will start to lose the fear of not maximising your gains. You’ll learn to accept that you cannot be on the right side of every trade. The losses, while still a disappointment, become a part of your trading day. If your method has positive expectancy (i.e. you expect, from an historical perspective, to have more winning trades than losers) you’ll know that the next trade has an equal chance of being a winner. Mastering fear allows that trade to reach its full potential, either at your designated TP, or where the market indicates that the move has run its course. You can close the trade and ignore the pips that may come afterwards. Fear can only be overcome if you have faith in your method or system. If trades are being entered in a random manner there will be no pattern to guide you as to the likely success, or failure, of any particular trade. You’ll be on an endless wave of emotion – joy at a winner, despair at a loser. Eventually, you’ll find it increasing hard to press the trade button; fear of yet another loser will over-ride all other considerations. Even the very best signals will cause you to stop and fear the worst. When the trade starts to turn into a likely winner, fear of missing out can cause you to ‘jump on the move’, just to try and grab some pips. By which time, of course, it may be too late. And so the cycle continues. Accept your losers. It’s the first step to overcoming fear. Dealing with your Ego is the last factor I’ll cover in the Psychology section, simply because I’m not a qualified practitioner, therefore all I can hope to do is point out some of the pitfalls awaiting you. All the trading articles I’ve ever read contain the quote – ‘leave your ego at the trading room door’ – or something very similar. The reason for this is simple. If we cannot accept the fact that we are capable of making mistakes, it will be practically impossible to practice the other regularly quoted piece of advice – ‘cut losers short, let winners run’. There’s a subtle but important difference between A bad trade placed outside your trading rules that’s turning into a loser A good trade placed in accordance with your trading rules that’s turning into a loser. In the case of trade (1) we’ve made a value judgement about where we think the market is going. Deep down we think we are going to steal a march on everyone else. Our decision isn’t based on any core logic supplied by our system, it’s based on what we know is going to happen. This one feels right. We can jump the gun here and let the market catch us up later. The problem here, of course, is we now have too high a level of emotional attachment to this trade. We called it, so it’s our sense of worth that’s on the line, not the system’s. Some of these trades will work out, and your ego is given an unwarranted boost. Worst-case scenario is that you’ll continue down this route until you hit the inevitable roadblock, and the market proves YOU wrong. This is the moment when your ego won’t let you admit you’re wrong. This is the time when you start to move your stops further away, in order to give the trade time to prove you were right. No-one truly likes to admit that they’ve made a mistake, and we all try to justify our errors by hiding the truth behind all manner of excuses. In the world of trading you cannot hide your mistakes; your account tells the truth about your decisions. With trade (2) at least you can blame the system (assuming you’ve trading strictly to the rules) and this is another point at which ego can get in the way. In the learning stages of trading the tendency is to think – ‘I knew that I should have gone Long there, this system doesn’t work’. This all comes down to the hardest part of trading, accepting that you cannot win every trade. There is no guaranteed method that will ensure 100% successful trades. If there is, rest assured you’ll never hear about it, or, if you do, it will be so expensive as to be virtually unattainable for most people. So, accept that you, and your system, will be wrong as often as you are right. Look to reduce that percentage by careful analysis of your trading style. Find out what your weaknesses are and eliminate them before the market eliminates your account. Read the articles and threads I’ve mentioned in my earlier post in this section and as a final word of advice, I would suggest you invest in a book written by Marl Douglas. Its title is ‘Trading in the Zone’. It will be the first step in helping you understand what you need to know in order to master the Psychological aspects of trading.