The destructively impulsive trading

The destructively impulsive trading. Forex

More money has been lost operating impulsively by other causes. For example, it is common to hear beginner traders phrases such as: "the market has come down too, so it should start uploading". This kind of thinking is based more on impulsive thinking rather than on the use of reason, which should always prevail when it comes to operate in the market.

It never ceases to amaze discover how behave people highly prepared, disciplined and intelligent in places like Las Vegas for example. Men and women who never in his life would pay more than one dollar that the price negotiated by a product or service in their business suddenly lose $10 000 or more in just 10 minutes in games like roulette or blackjack. Noise, lights, excitement and crowds present at its around transform these people sober and intelligent players unconscious and irrational. The foreign exchange market, with its ever-changing prices, its constant flow of news, and the more liberal leverage in the world's financial markets tends to have a similar impact in novice operators.

Operated by impulse is the same as bet, so simple. You can provide momentary profits when you are on a winning streak, but a single important loss may result in that trader will lose not only their profit, but also all its capital and in less time than it can believe. As well as all history in Las Vegas ends in bankruptcy, the same happens with the impulsive trading. In the market, the logic makes us winners and momentum to kill us.

This maxim is not true since the trading logic is always more accurate than the impulsive trading. In fact, sometimes the opposite. Impulsive traders may have an impressive streak of winning operations, while traders who use logic-based operation schemes can have losing streaks. The cause of that reason will triumph on the impulse is that traders focused on logic know how limited their losses, while impulsive operators are almost always one or two operations remain in total bankruptcy.

Now let's see an example of how both types of traders operating in the market. The operator A is an impulsive trader. It 'feels' the price action and acts accordingly. Now imagine that the GBP/USD is moving upward and it reached a new high. At this point the operator to "feel" that the price has gone up too and open a sell position. And then it happens that the couple continues to rise, which convinces the trader that the market is overbought State and decide to increase your sell position.

What happens then is that the price stops but does not back up. Faced with this situation the impulsive operator is sure that the price is at its highest for which tripled his sales position, only to watch in horror as GBP/USD continues to rise and rise, which ends with a margin call on your account. A few hours later, the price actually reaches its maximum value and begins to drop rapidly, what cause the operator to become submerged in a sea of negative emotions - including the fury - while watching as the market moves in the direction he predicted without that you can do anything.

In this case, the trader was right about the market, but chose the high momentum and not logic.

On the other hand, the operator B employs both technical analysis and fundamental analysis to calibrate risk and estimate the time to enter. He also thinks that the GBP/USD is overbought, but instead of choosing a halt prematurely to enter the market, waiting patiently to which there is a clear technical signal like a red candle in an upper Bollinger band or a movement in the RSI below the level 70 before opening a position. In addition, the operator B uses the height of the movement as the logical point to place your stop-loss with which quantifies the risk.

This trader is sufficiently intelligent to use a size of position which does not risk more than 2% of your account and the operation fails. Even if you make a mistake as A operator, logical and methodical approach to operator B allows you to preserve your capital, by which may operate another day, while actions impulsive operator A led it to lose all of your account.

In the Forex market trends can last a long time, so dare to operate against the trend based on feelings about that is before the maximum or the minimum, can lead to disaster if the trader does not care. In fact, it is not necessary to hold a whole movement of trend reversal for good profit, if we can take advantage of a 70% - 80% of a movement, we can say that it was a very good operation.

While the impulsive trading may seem more exciting, the reality is that the trading based on logic - used by professionals - is what will make us money in the long run.