Fear is the natural reaction we display to threats that could cause us harm. Being fearful is normal. In fact, the emotion is regarded to be crucial to our survival. Without feeling afraid, it will be difficult to notice danger and escape from it.
However, in forex trading, fear is harmful when we allow the perceived loss-making threats to cause us to make irrational and unsound decisions
Instead of motivating us to execute trades without worries, fear draws us back from making trades, convincing us that we are wrong. This fear of being wrong overrides the power of our analysis and the amount of time we’ve taken looking for good setups and points us to the darker side of the market.
Another type of fear is that of missing good trades. This fear often makes us enter trades at any price, without waiting for the appearance of profitable trade setups. A fearful trader who does not want to miss good opportunities frequently disregards a rational approach to trading and allows excitement to overrule their decisions.
The last type of fear, which is even more dangerous, is that of loss. The fear of failure causes a psychological scare in our minds and send us dreadful warnings before making trade decisions.
For example, let’s say you have a long running position on the EUR/USD currency pair, and bad news comes regarding the state of the Eurozone economy, what would you do?
In such situations, most traders will feel scared, overreact, and quickly close the trade without a second thought. Even though they may be taking action to avoid losses, fear usually drives such decisions and could lead to missing out on the possible gains.
Fear in forex trading usually leads to ruins: as fear pushes traders to make unfounded decisions, their trading accounts get depleted slowly by slowly—until they receive margin calls.
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