Trading Psychology · Emotional control · Article 1 of 4
Fear, Greed and FOMO
Ask experienced traders about their worst trades and you'll hear the same three feelings again and again. Learn to recognise them and you'll avoid most of the costly mistakes.
CFDs are complex instruments and carry a high risk of losing money rapidly because of leverage. Make sure you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Fear: acting to avoid pain
Fear makes you hesitate over a trade that meets every rule in your plan, or close a sound position at the first small dip. It also keeps you in losing trades, because closing them makes the loss real. While you wait and hope, the loss usually grows.
Greed: when enough never feels like enough
Greed pushes you to add to a winner beyond your plan, use more leverage or keep moving your profit target. It can also tell you to add to a loser so you win everything back when the price turns. That is how small losses become margin calls.
FOMO: the fear of missing out
FOMO hits when a market moves fast without you. The urge is to jump in late, often near the top of a rally or the bottom of a fall. Before you chase a move, ask:
- Would I take this trade if the price hadn't just moved?
- Does it match a setup in my plan?
- Do I know exactly where I'll get out if I'm wrong?
If any answer is no, let it go.
Five rules that keep feelings in check
- Decide in advance. Set your entry, stop loss, target and size while you're calm, then place the orders.
- Trade a size you can ignore. If a position makes your heart race, it's too big.
- Cap your losing trades per session. Pick a number, such as three, and stop when you reach it.
- Keep your size steady after wins. A good run breeds overconfidence.
- Log your mood. Add one word on how you felt to every journal entry. Patterns appear within a few weeks.
