The foreign exchange market never stands still and, while it may move slowly at times, it is always on the move. In many ways this is one of the great benefits of Forex trading as it is this movement which provides the opportunity to profit from buying and selling global currencies, but it can also make it difficult to decide when to get into a trade, get out of a trade or simply stay out of the market altogether.
Perhaps the biggest problem with a market which is constantly presenting the trader with the opportunity to make a profit is that it plays on our natural sense of greed and this is a very real problem if you are not aware of the danger you face.
We all love to make a profit, but how much profit is acceptable? If you're in a trade and looking at a profit of $800 should you close out your position and take that profit or hang on in there for $1,000? You trade to make money and the more money the better so, when the market is moving in your favor it's only natural to want to ride the wave all the way to the beach. The problem however lies in knowing when you've hit the beach and not waiting until the undertow starts to drag you back out to sea again. Once you get caught up in the undertow it can prove to be very strong and drag you out again very quickly.
Many people enter Forex trading with a picture in their mind of just what they're going to do with all the money they make and that's no bad thing. It's extremely important to have a goal, and a plan to reach that goal, and to plant a visual picture in your mind as something concrete to aim for. However, the other side of this coin is that you may well be tempted to try to reach that goal faster than you had originally planned or to create a bigger and better goal as you go along, allowing your natural tendency towards greed creep in and begin to take control of your trading.
Another problem here is a simple failure to recognize that money does not drive the market.
Think about it for a moment. Whether you have $5,000 or $500,000 in your trading account is not going to make any difference at all to the way in which the market moves. Similarly, whether you have a $700 profit or a $700 loss in an open trading position isn't going to make the slightest difference as far as the market rising or falling is concerned.
The fact that you've done well in a trade and have made a profit of $700 doesn't mean that this is going to turn into an $800 or $900 profit if you wait a while longer. However, it's perfectly natural to find yourself caught up in your ‘winning streak’ and to convince yourself that there is more to come.
It's also perfectly normal to find that, having lost $700 in an open trade, your natural fear of losing is going to convince you that things will turn around if you just keep your nerve and hold on a little bit longer.
Setting yourself a goal and making a plan to reach that goal is essential, but your trading decisions need to be based not on your goal but on the market. Money should have nothing to do with whether you enter or exit a trade, or stay out of the market, and such decisions should be based solely on what your analysis and the numbers tell you.
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