Updated: Jan 22
Most people want to become traders in the hopes of making some ‘big gain’. With some beginner’s luck and the high leverage that forex trading offers, many newbies do actually end up making lottery-like winnings in a few days, only to lose it all later. Experienced traders who remain within the folds of their trading plan also experience big wins. However, these traders are disciplined and react differently to the winnings, which helps them grow their trading profits to the next level.
When traders make big profits more quickly, it can make them feel 'high' and euphoric. This in turn can cause them to become over-confident and rash, and abandon their trading rules. A lot of traders will find themselves wanting to risk more than what their trading plan allows after a huge profit. It is crucial to understand how a big rewards can effect emotions and trading discipline.
The anticipation that the big gain must be repeated: After a big gain, the mind automatically starts to anticipate that every other trade would be as rewarding. Rationally speaking, such big winnings may not repeat themselves too often. The bigger the gain, the greedier and the surer you will feel after it regardless of how poor the odds of earning that gain again.
False sense of euphoria: Sudden big wins lead to a false sense of euphoria and pleasure. You may feel the urge to celebrate and boast among family and friends of how excellent a trader you are. You may start dreaming of constantly repeated winnings, unrealistically high profits and how to spend your piles of money, forgetting the actual pace and probability of such winnings.
Increase in risk appetite: In order to relive the thrill of the big win more quickly, you may end up throwing caution to the winds and risk much more than what your trading plan allows. You may think that since you have more money to play around with so there is no harm in risking more.
It goes without saying that when you risk more than your trading plan and lose your discipline, the results can be disastrous and you may end up losing all your winnings, and even more. The key to successful trading always lies in maintaining your trading discipline by harnessing your emotions. These may not only be negative emotions, but overly positive ones as well. Never abandon your original trading plan, no matter how confident you feel.