These days a lot of traders are losing their money because they want to go to impulse where they should be going for logic. Upon asking from a novice who why he went too long for a currency pair he said, “since it was falling down, I decided to take it back.” We get to know such responses because they are not based on reasons. In simple words, it’s not more than a wishful thinking.
Impulsive trade is just like gambling.
Things can really go crazy if you are at the winning streak. Suddenly, if one loss appears, it could push back the trader from where he started. All the profit turns into a major loss, and he has to start recovering all of over again. Every impulse trading ends up like this and gives a serious heart shock to the trader. They forget a simple phenomenon that in trading logic wins whereas the impulse fails. The reason behind this is not that since logic is involved so the trading would be precise. Impulse traders might always see a bright situation in front of them whereas it doesn’t happen in the case of logic trading. Still, the only reason where logic wins is that logical traders calculate their losses whereas it doesn’t happen in the case of impulse trading.
To get the better understanding, let’s first look at the both traders how they work in the market.
The impulsive trader
For example, trader A acts as impulsive while trading. Whenever he feels the price is changing, he responds accordingly and quickly. Assume that he is using EUR/USD EUR/USD currency pair because of its sharp movement. When he feels that he has already reached too far, then he decides to short the currency pair. The trader is convinced because the pair has rallied higher than he was expecting. He continues to operate this way because he thinks everything is going fine. Suddenly, the pair drops out without any major indication. At this time, the impulse trader can only see things in front of him, and he can’t go-ahead to react on it. He was right in his approach but being too impulsive let him slipped.
On the other hand, the trader B uses technical analysis and logic to correctively measure the risk and time. He estimates that the currency pair EUR/USD is highly overvalued, but rather than quickly reacting to it he waits and sees how things unfold in front of him. To correctively measure the risk, he uses the swing high technique. He is very active and smart that he positioned himself like even in the worst case, he won’t beat more than 2% of loss. This way, he is going to save all his capital for the future transactions.
The talking point is that in the forex market, nothing remains forever and things change very quickly. Even though the top position might look good for you but going too high will involve more risk. Instead, you should wait for the right moment and along with that you must calculate each move to minimize risk.