What is the single most common reason for the growing popularity of the foreign currency exchange? It is its lucrative nature which means that there is a lot of money that can be made in the market for a small investment. Therefore, it can be said that the main reason that so many individuals become interested in forex trading is the potential to make a lot of money.
When a trader starts from this point then it is very easy for this goal of making a lot of money to turn into greed. Unfortunately, the foreign exchange rewards only those individuals who are balanced and moderate in the way they approach their trading. Consequently, when a trader becomes greedy then he becomes susceptible to the volatility of the market.
Greed Means Losses
The ironic aspect of greed is that the moment a trader becomes greedy about profits, his chances of achieving his financial goals drop significantly. Therefore, the desire to get more money actually ends up causing the reduction of profits.
The reason why this happens on the foreign currency exchange is that greed results in a change of behaviour from the trader wherein he forgets logic and objectivity and instead reacts on his desires and emotions. Here are some direct repercussions of becoming greedy on the foreign currency exchange.
Ignoring Money Management Techniques
Money management techniques are designed to counter the threats which the market poses. However, the more risk a trader takes in the market, the more he stands to make.
Therefore, when greed takes over on the foreign currency exchange, the first casualty is the money management strategy that the trader was employing up until then.
Neglecting Market Trends
Greed as an emotion is both aggressive and subtle. The subtlety of greed lies in how it changes the perception of the trader on the foreign currency exchange. For instance, a greedy trader often ends up seeing trends, patterns, and signals where there are none and then losing money because he reacted on them. Hence, it is also common for greed to make a trader spot false trends and neglect real trends.
Promotes Compulsive Trading
Greed also breeds impatience in a forex trader. Greed is nothing but the obsessive desire to make more and more money on the foreign currency exchange. Therefore, it automatically means that the trader becomes impatient.
This impatience often leads traders to place trades which are not that meritorious simply because he or she feels the need to participate in the market. Needless to say, placing mediocre or bad trades can result in losses.
Prevents Balance and Moderation
Greed is an extreme emotion. It will always push traders to extremes of other emotions as well. For instance, greed is equally capable of leading the trader to bouts of euphoria as it is capable of creating debilitating fear in the trader.
Succeeding on the foreign exchange is about moderation and being balanced in one’s assessment of the market. With greed in one’s heart, this becomes next to impossible.