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5 Ways to Deal With Fear in Forex Trading

When you first learnt about the potential of investing in forex trading, you probably felt that was a good venture to look into. You must have heard the success stories and felt you could be the next forex millionaire.

But then, just before you started investing or trading, you heard the sob stories. You probably heard of the large percentage of loss-makers and the many scammers who have invaded the fx exchange market. And that’s when your initial fear set in.

How to Deal With Fear in Forex Trading

If you eventually managed to overcome that initial fear and invested, then you probably have to battle other fears each and every day. A common scenario is where you enter a trade on the prediction that it will go in a particular direction.

A few minutes into the trade and it is gaining pips. A short while later it is gaining even more, just as you had predicted. Then halfway into the trade, it starts losing pips. All of a sudden, your 100-pip gain of a few minutes ago has been reduced by 30 pips and sliding further downward.

If you give in to fear at this point, you will exit the trade to save the gains you had already made. Then a few minutes after you exit the trade, imagine seeing the gains returning and the trade closing just as you had initially predicted it would with a 200-pip gain. Now that is how fear can ruin your currency trading.

There are various ways you can deal with fear and be a successful trader. Some of these include:

  1. Trust Facts

Your first step in dealing with fear is to trust facts and figures from reliable sources. If the relevant government agencies report a downward trend in exports, then trust that report and perform your analysis.

Use such reports and common forex indicators to make your fundamental and technical analysis. Once you are sure of the outcome of your analysis, enter into a trade based on your study and do not let unreasonable emotions not based on facts dissuade you from going through with the trade.

  1. Walk Away

One common mistake that most traders do is what is known as pip-counting. You enter a trade and sit at your work station staring at the computer screen watching the price-chart action of your trade online.

The problem with this is that when prices start moving in a direction different from what you had predicted, most traders tend to panic. This leads to illogical decisions such as exiting the trade early.

To avoid this, you should learn to simply walk away from your trades. Make your analysis, confidently enter your trades, set your stop loss and take profit levels, and simply walk away from that computer.

Go do your chores, watch some news, go shopping, or involve yourself in some other activity. Just don’t engage in pip-counting.

  1. Do Not Just Trade To Be In the Market

One common mistake especially prevalent with forex trade novices is that most feel the urge to simply enter a trade just to be in the market.

They feel that no minute should be wasted and every moment presents an opportunity for lucrative trade. While this is true to some point, it does not make sense to enter trades only to lose money. You should only enter trades that you have confidence in.

The best way to overcome this strong urge to always be in a trade is to have a forex trading plan. That means you cannot just enter a trade if it does not fulfill the requirements set in your strategy. Before entering any trade, ask yourself two questions:

  1. Does the trade fall within the set guidelines of your forex trading strategy?
  2. Have you carefully conducted your analysis and have compelling reasons to believe the trade will be profitable?

Once you have convincingly answered yes to these questions, then you will have less fear of losing your investment in the trade.

4. Pick One Currency Pair at a Time

Like most novices, when we first started currency trading, we would switch our attentions from one currency pair to another and trade them. Often, we would even enter multiple trades with as many as five different currency pairs at a time.

This is a very dangerous and confusing approach. The more sensible approach with long term viability is starting off with one of the majorly traded currency pairs, for example the EUR/USD.

Once you have adequate experience and have mastered your first currency pair you can add on another and take just as much time practicing on it and mastering it before adding a third.

One thing every experienced forex trader knows is that every currency is unique and each currency pair reacts differently to market forces.

Others are more volatile and dynamic while others offer more stability with little profitability or loss. Learning how your preferred currency pair reacts is a key way of keeping your fears in check.

5. Do Not Hesitate

Forex trading is very much like a boxing match. Sometimes you have to just guard your face and watch your opponents action, but the moment you see your opportunity, you have to act right there and then without hesitation otherwise you will get knocked out.

You should not rush into trades, just do your analysis and wait for the opportune moment. However, when that moment presents itself, enter the trade without delay.

Losing time in contemplation will see you losing precious moments and maybe by the time you finally make your decision, the price action may have turned in the opposite direction.

Summary

Fear can be a debilitating factor in your forex trading venture. If you succumb to it, you are likely to let many profitable opportunities pass you by.

Fear may also lead you into panic and this will result in early trade exits resulting in minimizing your profits. To enjoy success as a forex trader, you should learn to overcome fear.

One of the tactics of avoiding fear is to conduct due diligence before entering a trade by doing your analysis. Once that is done, let the trade run to maturity. Walk away from it if necessary and avoid pip-watching.

When you begin trading, focus on only one currency pair and master the nuances and peculiarities of both currencies. This will give you confidence when trading in that pair. Only add on another currency pair after you feel you have mastered the first one.

What about you? How have you learnt to overcome fear in forex trading? Enter your comments below to assist another trader struggling with this dangerous habit. We would love to hear your comments.

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