There's a poll on the Currensee Facebook page which asks the question, "As a trader, which of the following psychological factors do you find the hardest to overcome?" The possible options are:
The two most common responses I saw among the traders who left notes along with votes were Patience and Fear. Casting back in time (way, way back!), I think I can remember my own progression. Here's how it went.
Let's face it. Most of us get into the market because of the potential to make a lot of money. Generally speaking, this doesn't end up being the thing which keeps people there, though. Most folks who stick it out over the long run tend to have additional reasons. They enjoy the intellectual challenge. Or maybe it's the "game" perspective. For some it's the competition. These additional reasons give a trader purpose when the realization hits that they probably aren't going to make 1000% returns every year.
Of course there's also the micro greed that can take place on a trade-by-trade basis. It's a definite trap to think mostly about how much you can make. Folks who do it too much don't last very long. I can certainly attest to what can happen when the risk side of things is ignored. Fortunately, I think I got passed that.
When I got my start in trading, back in the Jurassic Era, there wasn't much in the way of demo trading. What we had then was literally paper trading – keeping track of buying and selling in a notebook. When I got to the point of needing to develop trading on live prices I had to do it with real money. I was all of 18 at the time and not exactly flush with cash. The money I traded was all that I could scrape together. On top of that, I didn't have experience actually putting in orders, so you bet there was a fear factor.
Practice tends to reduce the fear aspect of things. As time went by, I got comfortable with both entering trades (over the phone!) and having money at risk in the markets. The fear factor faded, except on the occasional instance when I goofed something up and had a position I didn't mean to have. That can get your heart rate going pretty quick!
Once you get over the hurdle of being afraid to pull the trigger, the pendulum can definitely swing in the other direction to being overly eager to do so. I have definitely gone through periods where I just let things run away with me. This sort of thing often happened after a good string of results. Can you blame me? If you're on a good run you want to keep it going. That tends to make you forget your trading rules, though, which is never a good thing.
Actually, some folks get caught up in revenge trading which can also be a lack of patience situation. This comes about when you take a hit in the market – often one bigger than you probably should have – and you're eager to make that money back. There's a scene in the Trader video where Paul Tudor Jones takes a hit in the markets and talks about making the losses back with interest. The difference between him and the rest of us, though, is that he clearly didn't get impatient, though he certainly did make the money back, and then some.
Lack of Confidence
Once I got over the three previous issues (mostly, at least), confidence became the thing which did the mental damage. I am not primarily a rigid system trader. That means my own discretion weighs heavily in my trading decisions. As such, when trades don't go well, it can be a confidence shaking situation.
System traders have a simpler path to evaluating their trading and do discretionary traders because there is no human element (or at least there shouldn't be). It's just a question of whether the system is working properly. With a discretionary trader, though, the methods employed have to be evaluated as well as the trader's application of them. For those inclined to be hard on themselves (as I can be), a period of underperformance can create a crisis of confidence. If you're prone to shaky confidence, you might be better off being a system trader rather than a discretionary one.
Charting Your Own Forex Path
The progression above was my own path through the comment mental pitfalls of traders. There was certainly overlap, and some things supposedly put behind me reappeared at different points to trip me up. Your own path may be quite different. It's good to know what's underlying your mental hurdles, though. It makes them that much easier to overcome.
Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.