Successful Trading in Any Investment Venue Requires Emotional Control

May 12th, 2011

by Tom Cleveland


It is Sunday on the PGA Tour.  A solitary golfer is studying his fifteen-foot putt on the eighteenth green.  If he makes it, he wins the tournament, making this putt worth thousands of dollars and prestige for a lifetime, more pressure than most anyone should endure.  He proceeds to follow a routine that he has repeated on every hole before this final one.  Checks his line, looks down at his putter, at the line once more, then down again, and then he putts the ball in the hole for a well-deserved win.

We admire professional athletes in any sport for their prowess under pressure and their ability to block out all around them in order to perform.  Anyone that has a stressful job that requires performance can learn from this simple example.  Active traders, whether in the field of securities, commodities, or currencies, can easily identify with our professional golfer, and the successful ones actually follow a similar process to record consistent gains, take decisive action, and act with confidence in a profession where there is a fine line between success and failure.

Knowledge and experience, or technique and talent, will get you just so far in a pressure-packed arena.  Emotional control is the proverbial “third-leg-of-the-stool”, which, if ignored, will undermine all attempts to achieve at a higher level.  Studies in the psychology of investing have continually confirmed this fact that your subconscious mind will often be your worst enemy, deliberately working against your best interests, but only acting out the hidden reservoirs of fear and self-doubt that lay in the darker corners of our minds.

Psychological factors are more pronounced when the trading action is swift and volatile, the basic framework that faces a day trader in the world of forex trading.  Initiating a trade may be a problem for a few, but it is generally an affirmative action, full of hope and the possibility of material gain.  If the trader has difficulty closing the position or pulling the trigger, so to speak, then he has subjected himself to mental speculation.  He remembers his last loss or the fact that he cut off a winner too soon.  He hesitates, or worse yet, he procrastinates, almost freezing before his screen, unable to make a key decision that will either limit a loss or permit a winner to run.  Tests show that losses unduly influence our future choices.  We loathe judgment and accountability situations.

Professional athletes practice a routine, step-by-step, in order to block their minds and allow their muscles to act as trained.  Forex brokers provide free demo accounts for traders to gain experience while practicing with virtual cash and real-time quotes, but a trader must have a stepwise plan that guides his decision-making before, during, and after a position is ever opened and closed.

Practicing a trading plan until it is “rote” is the only time-honored solution for blocking out the negative influences of the mind.  Follow this advice if success is your goal!

Risk Disclaimer: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite.

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