Thursday, October 30, 2008

The Emotional Day Trader Versus the Robot

Ive spent 4 years now day trading the forex market. Day trading in the Forex market can be both stimulating and stressful. With trading of currencies occurring in such short time spans in this type of trading strategy, you have to keep on the ball at all times - otherwise, you'll end up losing more than you make. Other trading strategies are available (i.e. scalping, swing trading, long-term trading), but day trading can offer you real excitement and some big profits if done properly.

Reign in your emotions

Whether you're investing in the stocks, real estate, or the Forex market, you should maintain a level head at all times. If you bring emotion into the equation, it can negatively influence your investment earning potential. That's especially true in Forex day trading, as the numbers constantly change as positions are opened and closed within minutes, and even seconds at times. If you don't stay focused, you'll trade on a bad deal or miss out on a great opportunity. For example, if you place a trade to sell a currency at a certain rate and one hour later the bid price (rate at which you can sell the currency at) substantially increases, you might be overcome with emotion that could negatively effect your future trading. On the other hand, if you buy a particular currency and two hours later the ask price (rate at which you can buy a currency at) goes even lower, you'll also be pretty upset. In both scenarios, it's best not to harp on "what you should have done," but how you can make profits in future deals. Otherwise, you'll be stuck in a negative frame of mind that can cloud your decision making process in the future.

Besides punishing yourself for past mistakes, market greed is another potential killer to successful day trading. Suppose you happen to be on a winning streak and you believe that the market will continue to go in your favor. The trading signals say otherwise (i.e. overall economic indicators weakening), but you're so caught up in your winning ways that you forget to pay attention to the numbers. You place your trades even though the current indicators are not in your favor and you start to lose some of your gains. What you should next time is to walk away from the trading and close out the day with a profit.

Robot Trading

The future of trading is to look to the robots that can automate your trading. Take emotions out of the equation and you can make money without being glued to a PC constantly. Expert advisers such as pointbreak are producing consistent results over time with great money management.

Paul Heap is the trader and webmaster behind several websites, including Forex Automated Tools, and Forex SMS Alerts.

Morning commuters walk past the New York Stock Exchange October 28, 2008. (Brendan McDermid/Reuters)Reuters - The U.S. economy suffered its sharpest contraction in seven years in the third quarter as consumers cut spending and businesses reduced investment at the onset of what may be a severe and long-lasting recession.

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