Understanding the mood of the market is vital, not just for opening successful trades based on sentiment, but also to understand yourself and your trading decisions.
Ego and emotions play a crucial role in investors’ market decisions. As a novice investor, you've probably made many irrational emotional mistakes, and that is entirely understandable.
Being able to replace emotions with reason isn’t easy and doesn’t come to us naturally. It is something you must learn.
A wise person once said that people are motivated by greed when buying and fear when selling. With greed referring to optimism and fear of pessimism. If you want to become a successful Forex trader, greed is probably the biggest obstacle you’ll have to overcome.
I’m not referring to calculating how much you'll have to invest to have your annual return go through the roof, but rather about the ability to learn when to exit the market.
The human element, which encompasses a range of emotions from fear to greed, plays a much more significant role in the decision-making process than most investors realise. And that is why is it so essential to control greed.
In practice, rising prices that at first appear to be excellent opportunities to sell, lead in the end to greed-influenced buying at much higher levels. Perhaps you’re wondering what we’re talking about? Basically, this refers to when you do not exit the market at the level at which you planned to. Instead, you become greedy and optimistic that you can get more out of your trade.
By replacing reason with emotions, you’re making a fatal mistake that can often cost you a lot of money. Imagine if the market turns against you and suddenly you lose all your funds.
That’s why there are two simple tips you should follow to become a successful trader.
Firstly, always stick to the plan!
Secondly, learn to act against your own emotions. Only once you learn how to move in the opposite direction to the mood of the crowd and your own feelings, you’ll be in the best position to earn money in any financial market.