Psychology and Investing

Take your emotions out of the picture, that’s what they say. While some investors are able to treat securities in an indifferent manner, few are able to ignore the feelings of greed or fear that come with profits and losses. For people involved in financial markets, finding ways to trade without emotion is one of the toughest and most important tasks that an investor will attempt. The border between human psychology and investing is a shady one, filled with perilous lessons as well as the figurative corpses of an immeasurable amount of investors who have tried — and failed — to ascertain the balance.

The ugly truth of investing? Not everyone is a winner. This is true in almost any market, including the FX market. Even while attempting to strategize without emotion, we cannot avoid our own psyches; we are not machines, no matter how much caffeine we digest on a daily basis. As a result, things that should be certain are often unclear, and things that should be unclear are often certain. Today, Henry Paulson and Ben Bernanke spoke to Congress and presented a mixed bag of information. However, despite the overall optimistic tone of their talks, the US Dollar got slammed across the board, losing about 100 pips against the Euro. So what to do?

The best suggestion that I have learned from dealing in the FX market is to utilize whatever tools possible that push your emotions out of the equation. Personally, I utilize ‘Stop Losses’ and ‘Take Profits’ whenever trading, and perhaps more importantly, I avoid altering them at all costs. Our minds play tricks on us, fostering greed when we’re up, and inducing fear when we’re down. Even for incredibly successful individuals in the business and finance world (i.e. Jerry Yang), removing emotion can be a difficult proposition. However, there is something else to keep in mind: many traders do win. And as long as you are responsible and mature in your approach to investing, there is no reason why you can’t be one of those people who learns to balance psychology and investing.

Upcoming Figures
CAD Net Change in Employment (June)
CAD International Merchandise Change (May)
USD Trade Balance (May)
USD U of Michigan Confidence (Jul)

Currency Converter