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Foreign Exchange Currency Trading: The Biggest Mistake

The biggest mistake that somebody can make in foreign exchange currency trading is probably not what you think. It is nothing to do with trends, charts or systems. Nor is it about stop losses or even risk management, although all of these things are important.

No, the biggest mistake is to believe in one's feelings. Sounds weird? Maybe, because a lot of us grow up believing that our feelings are what matters in life. We make most of our big decisions on the basis of our feelings, from choosing a house to marriage. And yet our feelings are constantly changing. This is not the place for getting into a discussion about marriage ... but certainly when it comes to foreign exchange currency trading, we need to understand that our feelings are nothing more than a fleeting response to stimuli. In a sense they are not real. They have no fixed or permanent existence. And they certainly do not make a good basis for trading decisions.

Fear, especially, can be a forex trader's worst enemy. Trading is risky and therefore it is inherently stressful. Stress causes a physical reaction, including production of the hormone adrenaline and the 'fight or flight' response. We feel scared and we feel that we must take action immediately. Faced with a difficult trading situation, we are tempted to hang on in there at all costs (fight) or get out of the market (flight) depending on our emotions instead of on our system.

Fantasies about making a lot of money can be dangerous too. Like gamblers we dream of hitting the jackpot by finding the perfect trade or system, and all of the things we will do with all of that money. This kind of fantasy leads us into taking big risks. The slow and steady approach to building up one's account balance is just not fast enough for the big dreamer. He wants to get there quick, so he starts risking more and more on each trade. Pretty soon he is at the point where a couple of losses will wipe him out. And guess what - it happens.

It may seem that successful and experienced traders do rely on their intuition, but do not make the mistake of thinking that this is emotion based trading. What can happen for a long time trader is that they are reacting to a situation on the basis of past experience that they don't have any conscious memory of. This could be called intuition but it is not emotion. It is born of experience.

In order to have success with forex trading, the first thing you must learn is to follow a system and a trading plan to the letter. Only when you can do that 100% of the time can you afford to start bending the rules. The emotions must be put firmly in their place in foreign exchange currency trading.

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