TRADING PSYCHOLOGY
favour of algorithmic technology. Experience nearly always equates to competency. Tis means the experienced trader will have managed enough trades to know the dangers of acting on blind patterns and gut instinct, while knowing to avoid trading at times when the markets are particularly volatile. But even experience is prone to human error - and this is the negative side to solely placing trust in a manual trading strategy. Despite these psychological mine fields, if FX traders take the time to watch their own psychological traits, it can lead to a dramatic improvement in the ability to make a manual trading approach successful.
Recency Bias
Take recency bias for example. FX traders
can become Losses
influenced by the most recent trading results, without considering the bigger picture. Consider if a trader’s most recent trade loses, aſter a particularly pleasing run of results. Does this mean their manual trading strategy is failing? Of course not, the long-term strategy is still overwhelmingly positive. But these losses can cause traders to doubt their approach and whether they can generate consistent profits from the market anymore. Self-doubt leads to rushed and costly decisions, and this is real danger of manual trading. A simple way to counter recency bias is
can
doubt their whether
cause they Luck & Greed
Luck and greed is another dangerous combination when it comes to FX trading. As frustrating as it may seem, some FX traders adopt manual trading strategies that are incredibly risky, but make them rich in a very short space of time. Tese results are down to nothing but luck. But this risk taking mindset will lead failure over the long-
traders
approach can
to and generate consistent profits from the market
to keep a detailed record of previous trades. A manual strategy can then be refined by evaluating the hard evidence and taking emotion out of the process.
FX
term. Luck always runs out on the FX markets. But greed can stick around with a trader for much longer. Traders who
implement high-risk
techniques can fall into the trap of believing in a manual trading strategy that is ultimately flawed. Unfortunately, this sort of thinking has lead to many FX traders becoming broke when a high-risk trade fails. A conservative approach to manual trading will yield consistent profits over a longer period of time, increasing the traders experience, confidence and security.
Fear Fear is
psychological
challenge that all FX professionals face. It comes from many situations, but if leſt unchecked,
it can
completely paralyze the best manual trading strategies. As paradoxical
as it sounds, fear usually comes when a trader is ready to increase the amount of money they trade on the FX market; something which is necessary to make substantial profits. Te cash value figures can appear daunting and the natural reaction is to become overly cautious and pass upon profitable trades. Te trick is to not let fear induce inaction. Judgments should be made on hard evidence and nothing else.
FX TRADER MAGAZINE July - September 2013 25
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