You can have a “sure-win” strategy but still lose if you neglect one thing — your trading psychology. Every day, Forex traders sabotage their profits as they get gripped by emotions, breaking their trading plan with irrational decisions.
The worst part? You may not even realise it.
Here, I’ll show you how 3 deadliest emotions can kill your Forex trading profits, complete with real price charts. If you’ve been losing money in the markets, you’ll find these scenes eerily familiar.
1. Greed — Raising Profit Targets Too High and Staying in a Trade for Too Long
Most traders struggle with greed — after all, we go into the markets because we want to make money, right? But when we let this greed consume us, our profits get eaten up.
As the Wall Street saying goes, “Bulls make money, bears make money, pigs get slaughtered.”
So how does greed cause us to make poor trading decisions? It makes us raise profit targets too high and stay in the trade too long… causing winning trades to become losing trades.
Here’s an example:
Say, you went long with a profit target of 1.5R. (If you’re a student of my Forex trading course, you’ll know that it’s my usual profit target for Forex 15-minute candles.)
The moment you enter, the price spikes up, hits the profit target and you get 1.5R. (This could be $500 or $1,000 or $5,000 depending on the position size you took.)
But guess what? After hitting your profit target, the price continues going up, going up, GOING UP. That’s when you say, “Shit, if I’d stayed in the trade, I would have made many times more, so why did I take a profit of only 1.5R?”
And that’s when you start to experience this feeling called regret.
So you tell yourself this — “The next time, you know what? I’m not going to set a profit target,” or “I’m going to put my profit at 2R or 4R.”
There you go — recipe for a greed-driven trading disaster.
Many traders ask me, “Adam, why do you put your profit at 1.5R? Why not 2R? Why not 3R? Why not put a trailing stop-loss?”
You see, when you enter a trade, you won’t capture a great trend all the time. More often than not, after it hits your profit target, it goes sideways, or it goes down. So you cannot take one event and generalize it.
Besides, there is real danger in over-raising your profit target.
Let me give you an example:
Say, you raise your profit target to 4R. The price goes up, hits maybe 1.5R and then poof! It goes down. It doesn’t hit 4R, and you end up losing the trade or only breaking even.
So instead of winning 1.5R if you were not greedy, you get zero, or even -1R. Trust me, it happens.
Want to avoid falling into the greed trap? Stick to your profit target.
Now, I’m not saying you must put 1.5R — it depends on your strategy. For instance, when using other strategies, I may have a 2R target, or even a 4R target. But for this Impulse Pullback Forex strategy that I use with 15-minute candles, I find 1.5R to be optimal, and I stick to it.
Don’t be greedy and raise your profit target too high, or your wins may become losses.
2. Fear — Taking Profits Too Early
Another common profit slayer is fear and frustration.
Let’s imagine you place your buy order with a profit target of 1.5R. The price goes up and it almost reaches 1.5R… but it doesn’t.
It reaches 1.3R and goes down, and you end up with 1R loss. You would be upset, right? “Damn, I had 1.3R in my pocket and now it’s gone.”
But you tell yourself, “Never mind, let’s go for the next trade.” You stick to your rules and set your price target at 1.5R again. What happens?
Price goes to 1.2R, then goes down again. “Damn, another 1R loss. I was so close to my target!” You start to get frustrated.
And if you’re like most traders, after this happens 3 times, you’ll start to get upset and say, “If I had taken my profit at 1.2 or 1.1 or 1.3, I could’ve had 3 small wins instead of 3 losses.”
You develop this fear that what you have is going to be taken away.
So in your next trade, again you set a profit target of 1.5R. But this time, when it goes up to 1R and it starts to come down, you see this big red candle and you say,
“Oh, I’ve seen this before, I had some profits but I lost it. I better get out.” And you quickly get out, even before your stop-loss hits, and get 0.7R.
After you sell, the price goes down and you think “Luckily I sold it.” But guess what? It doesn’t hit your stop-loss, and boom! It goes back up and hits the 1.5R profit target.
That’s when you look back and say, “Damn, if I’d stayed in the trade I would’ve gotten 1.5R, now I only got 0.7R.”
What just happened there?
Because of the fear conditioned in you from your past 3 trades, you took profit too early.
Now, if you keep repeating this pattern, guess what? You keep getting trades with smaller wins — instead of the usual 1.5R, you get 0.5R, 0.2R. In the long run, your wins will not cover the losses.
For example, you get 5 winning trades and 3 losing trades. If you had stuck to your plan, you would have made money. But because your wins are less than 1R and your losses are 1R, you end up with an overall negative R.
The moment you do this, your trading system no longer has a positive statistical expectancy and you end up losing the game.
Want to avoid making bad trades out of fear? Don’t watch the market!
I always tell my students this: Once you’re in the trade, don’t watch it! Go fishing, go cycling, go do whatever… don’t watch until the price hits your profit target or stop-loss!
Because when you watch and the market goes up and down, you are bound to get emotional and intervene. That’s when you make premature decisions and compromise your earnings.
Ignore the charts, stick to your plan and fear won’t have its way.
3. Hope — Taking Profits Too Early
In life, it’s good to have hope. You hope your children listen to you, you hope for good health, you hope for a promotion. But remember this: In the market, hope is for the hopeless. Hope destroys you in the market. Let me tell you why.
You bought and set a 1R stop-loss. Price goes down, hits your stop-loss and then zooms up.
How do you think most traders would feel in that moment? “Damn! It was a winning trade! My stop-loss was too close!”
Or, “I’m just unlucky to hit my stop-loss, the market’s teasing me, the market’s screwing me.”
So what do they do the next time?
“I’m not going to put a stop-loss. Real men don’t put stop-losses.” (Someone once told me that and now he’s bankrupt.)
Or they say, “Next time it nears my stop-loss, I’m going to move my stop-loss and give myself time.”
So the next time you buy, as usual you place a stop-loss with your predefined risk of 1R. But the moment you buy, IT GOES DOWN.
You’re watching the market and you say, “Oh my god I remember watching this movie before, it hit the stop-loss and it went up. I got to move my stop-loss!”
So you shift your stop-loss down to give yourself a bit more room. It goes up and you go, “YES!” But then it goes down again, and this time, it threatens to hit your new stop-loss.
What do you do?
“I’ll shift my stop-loss lower, give myself a bit more room. I know it’s going to recover, it’s going to go up, it’s going to go up…”
But it doesn’t go up. Eventually, instead of losing 1R, you lose 4R.
Want to avoid making hopeless decisions? Manage your losses!
Many traders make the mistake of getting obsessed with their wins. In fact, controlling your losses is equally (if not more) important.
That’s why there are people who win 9 out of 10 times but wipe out their account the one time they lose — because they didn’t predefine their loss.
Learn to manage your losses and the wins will take care of themselves.
Moral of the Story: Control Your Emotions and Trust Your Trading Plan
If you’re nodding furiously to the above stories, you need to take your emotions by the reins.
So many traders fall prey to their emotions because they over-generalize. They get 3 losing trades in a row and cry, “I’m on a losing streak!” and start letting fear creep in. Or they get a few winning trades and become over-optimistic gamblers, raising their stakes to dangerous levels.
Once you’ve set up your trading plan and rules, you need to trust it to profit for you in the long run. Stay firm on your profit target and stop-loss, and never watch the market.
Want to know how to control your negative emotions, especially when the market is not in your favor? Watch my free lesson on trading psychology where I’ll share with you more examples and tips.