Have you ever been afraid of Forex Trading Risk? Or, you are quite happy playing to play with risk involved? In either case, you are your own worst enemy. Your body is forced through an emotional roller coaster, while experiencing the ups and downs in your trading.
Forex Trading Risk and Pressure
Forex Trading Risk creates pressure on trader. How do we react under pressure, the decisions we make, and our feelings toward markets play a key role in our chances of success. Forex is a psychological journey, but our own biology may have an important role to play. Research shows that could be to our genes and hormones to compensate.
Hormones are chemical messengers that our body uses to control the functions of our body. They have a great impact on our daily lives, including our: mood, behavior and the ability to learn from our mistakes.
Biological influences, such as hormones and neurotransmitters, have speculated that it is the leading cause of: boom and bust cycles in the market, market bubbles, and financial crisis.
In today’s article we will take a look at some of the major biological influences that can affect you and your Forex trading. After reading today’s article, you may actually be surprised at how many times he may have suffered a hormonal collapse or pursuing a career dopamine.
Measuring Risk Appetite
Before going to the main discussion of Forex Trading Risk, let’s look at something that is related. Testosterone is the male sex hormone known – But did you know that women are actually the testosterone in her system too, just in a much lower levels. Because financial markets are dominated by men, we can say with certainty Forex is an industry fulled testosterone. This hormone has been the culprit guilty of many fleeing bull trend ‘bubbles’, falling markets and the financial crisis.
The conclusion is; too much testosterone can cause problems. Dominant males hormonal fuels men to make decisions riskier, more frequently, and to a greater reward (or losses). Young males are always picking fights with each other, they are more competitive and tend to be more involved in dangerous activities such as extreme sports.
This reflects what is happening in the animal kingdom. The males begin to fight each other to win his status as the “alpha male.” The alpha male gets all the girls, so that testosterone drives them to take the risk and pick a fight with the biggest and baddest rival.
After winning, the body releases more testosterone – causing the animal to take even higher risks and bigger challenges. Over time they go too far and pick a fight they can not win, which is his ultimate downfall. This is not too far with what is happening in front of Forex charts of a trader. The strongest male prevails, it makes evolutionary sense. Thanks Darwin.
Males in winning streaks are pumped with both T, they have a sense of euphoria alpha male of the “invincibility” and “no one can stop me ‘- that encourages them to take over the operations of higher risk, which ultimately leads to their destruction. Do not let that fool you though – an article states that a person may appear calm cool and collected on the outside, but can be raging with testosterone inside and making high-risk decisions.
Research has also shown that people exposed to high levels of testosterone during prolonged periods may suffer adverse effects in the brain that affects the ability of the trader to understand the effect their actions have on the market in the outside world. So in other words, they are so overloaded with testosterone lose the ability to recognize the consequences of their actions.
This makes sense, since I have heard of male traders basically playing with large amounts of money they could not afford to lose, which was acquired from expanding their mortgages. Really dangerous things, and that did not end well either.
I am sure that the meter testosterone have been out of line when the guy in particular one who knew he was risking $ 50,000 at once with an account of $ 350,000. Now everything is gone. Bull markets are said to be fulled by the influence of male hormones. Testosterone surges through market participants to alter the behavior of the crowd, pushing prices to extreme levels – creating a market “bubble”
We have seen this happening in the Gold bubble of 2012…
The interesting point here, I see again and again, it is how the market actually accelerates very aggressively once it begins to reach into the extreme prices.
This is what many traders will refer to a ‘climax trend’. It is easy to see how these scenarios are the result of testosterone fulled buyers ‘high risk’ inflate trash out of the market, which makes the bubble in the first place.
We see this every day in the lists – open markets average, and fall back.
In the War Room, we teach traders how to profit, and profit from these mean reversion moves in our course price action. They can provide yields very fast as the market ‘corrects’ back to value.
Your Response as “Fight or Flight”
The fight or flight response ‘is an evolutionary trait that was programmed in the sympathetic nervous system. If our ancestors faced a big bear roars – the flight or fight response mechanism at play.
The brain needs time to make a quick decision to run like a madman, or fight to the death by performing some kind of super-fast risk assessment.
In any case, the adrenal glands pump adrenaline that increases our heart rate, our eyes like a Christmas tree lights, our time increases alertness and response – basically prepares us for battle, or a quick getaway.
The response of fight or flight has helped the dead man survive the dangers of the land, but today are not so much at risk of being mauled by a lion random or bear angry, but is caused by dangers today . If we have a near miss with an out of control car, or someone pulls a knife on you – the fight or flight response kicks.
On the screen trade, fight or flight will surface when you look at the trading screen and see a trade that you thought was doing fine, now moving aggressively against you. How many times have you been in a situation where you’ve looked at the charts and felt his heart start beating faster? Your body is reacting and the release of adrenaline to help you deal with the best “threat”.
People who put too much on the line, or risk money that should not be, experience these moments more than others. Because so much is a game, it’s time ‘oh shit’ that triggers all emergency signals in your body.
In general, the fight or flight response is the reason why traders are scared, and out of trades too early or try to micro mange their positions. Or, on the contrary, the fight-or-flight response may be responsible for traders jumping in fast-moving markets, they do not want to miss the opportunity.
It is that “I have to react quickly at this time” feeling, and usually screws us. For this reason, it can be dangerous to look at the cards, especially when you have open trades. It is better to set key moments to check markets and assess the situation at the set intervals.
Like making trading decisions on the closure of New York – to see how the daily candle closed for the session, or control before the London markets open to observe price movements Asia session.
We do this in the War Room to identify any breaking operation failed Asia. Checking the markets amid a statement from the PFN, or an update of the central bank policy will cause chaos in the lists, and trigger the fight or flight response to their open positions.
It has helped us in the outside world, but is not very useful in the business world. Do not stop fight or flight clutter your trade, you should keep your eyes off of the table and let your trades complete their course.
The bottom line: Forex Trading Risk
Forex trading risk can be reduced to a significant extent by reducing the feel of biological pressure on you. Basically, all biological mechanisms that helped us resist the evidence for evolution does not really do much good for us in the Forex market. Although testosterone has been shown to help young men make more profits by taking a more aggressive commercial approach, an overload of the hormone can send these traders spiraling out of control.
It seems that women and older men are biologically better suited for longer term commercial success, taking more seriously risk and opting for the conservative approach. Many financial institutions and big banks are gaining ground in this and are actively seeking more women to positions of senior financial management.
Trade “psychology” will be strongly influenced by their biology. It is important to recognize when you are under the spell of the feedback loops of your body, and try to do everything possible to keep them functioning within normal parameters.
One i would highly recommend you to read form Investigator: How to avoid Forex trading risk
When you get a risk free trading environment, your trade will be the better for it. Please let me know in the comments below if you can remember a time when biology has had a firm grip on their commercial behavior, or if you currently have trouble controlling their behavior while trading.