The 4 basic human weaknesses in trading: Greed, fear, impatience and pride. How do these emotions cause so many Forex traders to lose money? Let’s examine the ways.
Greed
Greed causes poor traders to increase the size of their trading positions the moment they’re “in the money” (in a winning trade). This often results in these traders having the largest position size trade just before the market turns in the opposite direction. As a result, this causes them to suffer large losses.
Fear
Fear makes people avoid entering into good trades because they don’t know what they’re doing. Heard of the phrase “buy low, sell high”? Unfortunately, many traders think that this is true. The profitable traders however, know that a more accurate phrase would be: “buy high, sell higher”.
Fear is often the result of not knowing what one is doing. If you have a proper, reliable trading system, fear shouldn’t be in your trading vocabulary.
Impatience
The opposite of fear, impatience leads people to enter into trades when there are no clear trading signals. Needless to say, most of these impatient trades usually turn out to be unprofitable.
Pride
This is very possibly the worst trading weakness of all! Pride makes a trader hold on to losing positions with the false hope that the position will turn around in his favour. Winning traders are humble, and aren’t afraid to admit that they’ve made a mistake when they lose money. After all, no one can be right all the time!
Unfortunately, many losing traders refuse to admit that they’re wrong, and often lose money to pay for their pride.
Summary
Understanding the effects of these emotions is crucial before one can be a consistently profitable trader. Use this knowledge as a tool to make money from ignorant traders, and don’t fall into these traps yourself!
