Leading global provider of foreign-exchange trading IronFX is committed to financial education for the trading community and founded its learning platform IronFX Academy to be a centre of resources for aspiring and experienced traders alike.
IronFX Academy provides webinars, educational videos, and articles to support continuous learning. By staying informed and constantly improving their knowledge and skills, traders can adapt to rapidly changing market conditions and enhance their trading success.
Forex and CFD trading comes with its own set of challenges. Market sentiment can switch quickly when overtaken by animal spirits. The term animal spirits was coined by economist John Maynard Keynes to describe the emotional and often irrational mindsets of fear and greed in the market. These can result in unexpected trends such as mass sell-offs or buying sprees, triggering volatility. To successfully handle volatility, traders must stay attuned to their own emotions and manage them well.
What does fear feel like in the markets?
Fear can cause traders to overreact to sudden market movements, leading to impulsive decision-making, such as impatiently liquidating positions or holding onto cash. This overreaction can result in missed opportunities for gains, and traders might fail to act in the best interests of their financial goals. Additionally, fear of losing money can trigger hesitation in entering or exiting positions, impacting on the trader’s ability to make rational decisions and follow their trading plan.
Ultimately, excessive fear can lead to a lack of discipline, emotional decision-making, and potential losses. To manage the effects of fear, traders can develop a comprehensive trading plan, practise emotional awareness, and focus on maintaining discipline and rational decision-making.
What does greed feel like in trading?
When Forex traders experience excessive greed, it can lead to overconfidence, biassed decision-making, more stress, and potential losses. Greed may prompt traders to take high risks and ignore their trading plan. Instead, they might hold onto unsuccessful positions in the hope of bringing in more profits. This behaviour can result in irrational trading judgments and a lapse in self-discipline, potentially leading to negative financial outcomes.
To overcome greed and fear, traders can cultivate positive emotional behaviours like patience and tenacity, which help to develop a long-term trading mindset. Learning how to put a strategy in place and trading with discipline are foundational skills for every trader, and IronFX Academy has a wealth of experience and knowledge to share with the trading community.
Emotional intelligence in trading
Emotional intelligence is a key determinant of trading success, yet in the financial context, it is often overlooked. Traders who possess high emotional intelligence can adapt to market fluctuations, manage stress, and make more objective decisions. Those who don’t, might not be aware of their emotional biases.
IronFX Academy emphasises the development of emotional intelligence through self-awareness and self-regulation. By honing these behaviours and turning them into habits, traders can build resilience and maintain a balanced approach, even in the face of unexpected market events.
Self-awareness is the foundation of emotional intelligence. It involves recognising and understanding one’s emotions and how they influence decision-making. IronFX Academy encourages traders to develop self-awareness by regularly reflecting on their emotions and identifying patterns that might impact their trading decisions. By understanding their emotional triggers, traders can better manage their responses and make more rational choices.
Self-regulation is the ability to control and manage emotions effectively. Even during high-pressure situations, self-regulated traders keep their composure. They trust in their plan, use techniques such as mental rehearsal to improve emotional resilience, and maintain a clear and focused mindset during trading.
Empathy is another essential aspect of emotional intelligence in trading, and involves considering the perspectives and emotions of oneself and other market participants. IronFX Academy encourages traders to consider the potential impact of market news and events on the psychology of other traders. By cultivating empathy, traders can make more informed decisions and better anticipate market movements.
To overcome emotional biases and improve emotional intelligence when trading, here are some strategies shared by IronFX Academy.
Risk Management Techniques
IronFX Academy explores various risk management strategies that traders can use to protect themselves from the emotional impact of market fluctuations. Setting stop-loss orders is one such technique for traders to manage their exposure to market risk. Diversifying portfolios is another strategy that helps spread market risk across different asset classes. Sound risk management techniques can assist traders to protect their capital and trade with a more objective and disciplined approach.
Always have a plan
A plan provides a roadmap for traders, outlines their trading goals, risk tolerance, entry and exit points, and financial targets. By having a clear plan in place, traders can reduce impulsive decisions driven by emotions and follow their predetermined strategies.
Some of the questions traders should ask themselves when building their strategy include:
- Is the market trend confirming my fundamental and technical analysis?
- Why have I rejected any contradictory information?
- Have I set reasonable take-profit and stop-loss levels?
The journey toward mastering trading psychology is ongoing. IronFX Academy encourages traders to engage in continuous learning and self-reflection. By analysing past trades and understanding their emotional responses, traders can refine their approach and strengthen their resilience over time.
Master your trading psychology by signing up to IronFX Academy today!
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