This article is a bit special as this not only can be used for forex trading but also for trading in other financial instruments such as cryptocurrency and the stock market. Fear and greed as you know are the two biggest enemies of traders. Those two emotions can swing your trading decision that should be rational but can make it irrational. That is why knowing and understanding them can be a great advantage to those who want to improve their trading psychology.
Fear
We all know what fear is, it is something we perceive as a threat that can endanger our lives and thus we avoid to make a contact with it. By definition from Merriam-Webster, fear is an unpleasant emotion that is caused by awareness of danger and anticipation. For instance, when we want to cross a bridge where beneath the bridge is a steep abyss, we would feel threatened by it which makes us fear falling from the bridge, and thus if the fear overcomes us we would avoid crossing the bridge.
In forex trading, fear can hinder great opportunities in the market such as the fear of missing out which eventually makes traders do the impulse trade. This impulse trade is closely related to our emotions as human beings. Actually, emotions are normal for humans as this is what separates us from a robot that is designed to not have emotions like humans have. However, if we cannot control it, then, be prepared to be controlled by your fear. Aside from impulse trade, just like crossing the bridge metaphor, we can also feel fear to open a position in the market which makes us regret later if the market goes in the direction of what we fear to open a position.
Greed
The definition of greed can be seen from the explanation of Oxford Learner's Dictionaries where in that website greed is defined as wanting more power such as wealth than a person's needs. This means that you have enough power like wealth for yourself however you want more wealth because of your selfish wants. That kind of greed not only can disrupt your trading performance but also can disrupt your personal life like relationships with people where you should be caring by sharing what you have with people but you use what you have to gain more for your satisfaction.
An example of greed in forex trading can be seen when you have an open position that has a high floating profit, you would then think that you are everything and you are a master of forex because the market is "obedient" enough to your analysis which eventually makes you overtrade the market, however, something like that is like a calm before storms that will strike your calmness into a raging state of your emotions as the market can move suddenly against your position due to development of circumstances of the market. In short, overtrading is mainly caused by greed that can underperform your performance, and also too long holding a position because of your greediness can lead your winning position into a losing position.
Conclusion
Fear and greed are really important to know and understand as these are the most dangerous enemies of all traders who are trying to perform better in the market. Fear, in forex, is where you feel threatened enough by your emotions that are "telling" you to avoid trading in any conditions which can hinder you to open a rational trade or even can make you open based on your impulse "instinct". On the other hand, besides fear, there is greed that can make traders feel "invincible" due to their luck which eventually destroys their performance over time such as changing take profit target suddenly on a trade that is currently open from your original trading plan because you want more profit.
Written by Andre I.
References
Merriam-Webster. fear. Retrieved from Merriam-Webster. (Accessed 13 April 2022): https://www.merriam-webster.com/dictionary/fear
Oxford Learner's Dictionaries. greed. Retrieved from Oxford Learner's Dictionaries. (Accessed 13 April 2022): https://www.oxfordlearnersdictionaries.com/definition/english/greed#:~:text=%5Buncountable%5D%20(disapproving),than%20a%20person%20needs