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Impulsive Forex Online Trading

Impulsive Forex Online Trading

Traders have lost a lot of money simply by being impulsive while doing forex online trading.  This type of impulsive trading is quite common as traders are pulled into the constant movement on broker’s sites.  The constant news stream and flashing quotes is enough to blow logic out of the head of the most careful trader.  It causes them to act impulsively on their trades and this is when they start losing money.

Gambling

Forex online trading often provides a huge rush for traders, particularly those who are on a winning streak.  What they do not realise is that one bad move could cost them all the money that they have won on their streak.  Forex trading can be likened to gambling in that it pushes you to continue trading because you think you are on a winning streak and do not consider that the tide will turn against you.  It is said that in trading in this financial market logic always wins and impulse always kills.  It is not because logic is more precise than impulse.  It is because those who trade in a logical manner know how to put limits on their losses, while the impulsive ones have no limits.

Impulsive Forex Online Trading

Impulsive traders will often tell you that they ‘feel’ the price movement and will trade on that ‘feeling’.  If you imagine that currency prices related to EUR/USD have moved sharply upward for this illustration.  The trader who acts on impulse will get a ‘feeling’ that he should reverse and makes a decision to short his currency pair.  The price continues to increase and by now the trader is absolutely convinced that is has been overbought and decides to sell more of the currency pair.  Then the prices stall and do not go back.  The trader is now certain that it has reached the top level, decides to treble his position and watches in terror as the currency pair goes higher which requires him to do a margin take on his trading account.  A few hours pass and the currency pair tops out and causes a collapse.  The trader has to sit back in despair and watch the currency pair sell off.  This does not indicate that his trade was wrong.  He was correct about the direction, but he based the top on an impulsive action, rather than logic.

Analysing

The other side of this scenario is a trader who uses fundamental and technical analyses to time his trading entry points.  He has the same feeling about the EUR/USD being overvalued.  Rather than prematurely choosing a turn based on impulse, he will wait patiently until he sees a clear technical sign before he initiates a trade.  He makes use of the swing high as a logical stop.  This allows him to quantify the risk level accurately.  He makes a decision to size the positions in a way that does not allow him to lose above 2% of his trading account if the trade fails.  Even if this is the wrong move, the methodical, logical approach to his trade succeeds in preserving his capital for another trade.

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