A common psychological reaction for traders ( when presented with a situation such as we’ve seen today ) is to jump in / make assumptions / over trade / freak out / spazz with the notion that:
- I’ve missed something so huge and now I MUST find a way to be a part of it.
- I’ve lost so much money on the wrong side of this move that I MUST place another trade in the opposite direction.
- I’ve now got this nailed down to an “absolute science “and will now look to double / triple my exposure as I’m sure to be a millionaire come sunrise.
Wrong. Wrong. Wrong.
Patience young grasshoppa.
- Yes you’ve missed something huge ( I did ). No big deal. These things happen many times throughout a year, and if you’ve survived at all – just be thankful.
- If you’ve lost so much money that you are compelled to place a “revenge trade” ( or even considering trading based essentially in your “need for revenge” – I COMMAND YOU TO STOP! – YOU ARE NOT TRADING……..YOU ARE GAMBLING.
- You made out really well and should be very pleased with yourself. Now take your profits ……go buy yourself ( and your family and friends ) something nice, and DON’T EXPECT THE SAME THING TO HAPPEN AGAIN TOMMOROW.
The psychology of trading will be the one element you struggle with the most, as most of you will likely blow your accounts long before you ever really address it – or have the opportunity to work on it at all.
You need to stay in the game…………………………… long enough to “understand the game”.
The Mental Game: Why Most Traders Self-Destruct Before They Learn
Understanding Your Position Size Psychology
Here’s what separates the amateurs from the professionals: position sizing discipline when emotions are running high. When EUR/USD makes a 200-pip move in a single session, or when the Bank of Japan intervenes and USD/JPY gaps 300 pips overnight, your brain starts doing stupid math. You calculate what you “could have made” with 5 standard lots instead of your usual 0.5 lots, and suddenly your carefully constructed risk management plan looks like cowardice.
This is where traders die. Not from bad analysis, not from missing economic data, but from letting their position sizing fluctuate with their emotional state. The trader who risks 2% per trade when calm suddenly risks 10% when desperate to “catch up” from a missed move. Your position size should be calculated before you even look at the charts, based on your account size and predetermined risk tolerance. Period. No exceptions for “sure thing” setups or revenge scenarios.
The Revenge Trade Trap in Major Currency Pairs
Revenge trading shows up most viciously in the major pairs because they’re liquid enough to let you dig your grave quickly. You got caught short on GBP/USD during a surprise hawkish Bank of England statement? The pair rips 150 pips against you in an hour, and now you’re staring at a loss that makes your stomach turn. Your lizard brain screams: “This has to reverse! Sterling can’t keep going up like this!”
So you double down. Maybe you flip long, convinced you’ve identified the new trend. Or worse, you add to your short position because you’re “averaging down.” Both approaches are financial suicide. Currency pairs can trend for weeks or months beyond what seems rational. The Swiss National Bank’s franc cap removal in 2015 saw EUR/CHF drop 2,000 pips in minutes. Traders who fought that move with revenge positions got obliterated.
When you’re in revenge mode, you’re not analyzing support and resistance levels, economic fundamentals, or central bank policy divergence. You’re just throwing money at your wounded ego. This isn’t trading; it’s expensive therapy.
Profit-Taking Discipline: The Hardest Skill to Master
Winning trades create their own psychological traps. You nail a perfect short on AUD/USD ahead of weak employment data, catch a 120-pip drop, and suddenly you’re a genius. Your brain floods with dopamine and starts whispering dangerous thoughts: “If this move continues overnight, I could make triple.” So instead of taking your planned profit, you hold on, dreaming of bigger gains.
Here’s the brutal truth: that euphoric feeling after a big winner is just as dangerous as the despair after a big loser. Both emotions make you abandon your trading plan. The professional takes their predetermined profit target and walks away, regardless of whether the pair continues moving in their favor. They understand that trying to capture every pip of a move is a fool’s errand that usually ends with giving back gains.
Set your profit targets based on technical levels—previous support/resistance, Fibonacci retracements, or key psychological numbers. When USD/CAD hits your target at 1.3500, you close the trade. You don’t care if it runs to 1.3600 afterward. Consistency in profit-taking builds account equity over time, while hoping for home runs leads to striking out.
Market Survival: Time in Game Beats Timing the Game
The forex market generates multiple significant moves every month. Central bank meetings, GDP releases, employment reports, geopolitical events—opportunities are constant if you’re alive to see them. But most traders eliminate themselves from future opportunities by betting too heavily on current ones.
Your primary job isn’t to maximize every trade; it’s to ensure you can take the next trade. This means accepting that you’ll miss moves, sometimes big ones. When the Federal Reserve pivots unexpectedly and sends the dollar index on a 500-point rally over two weeks, and you’re sitting in cash, that’s not failure—that’s survival. The trader who survives ten years in this market will vastly outperform the trader who flames out in ten months chasing every move.
Risk management isn’t about being conservative; it’s about being mathematical. Calculate your maximum acceptable loss before entering any position. Stick to those numbers regardless of market conditions or your emotional state. The market will always provide another opportunity, but only if you’re still in the game to see it.
great advice Kong
Right on P Man!
Hoping to help a couple “grasshoppas” along the way!
I hope you are well.
Yup. Always a great reminder to keep a level head after a wild day. When I end up offside I usually go pound out a bunch of motocross laps and come back w a fresh head and ready to think.
USD longs soon. Thanks again Kong and all. Enjoy the night
All I can & will say is what a day…. what a day… what a day… :0)
But I don’t think this is done just yet – I would suspect there is more to come relative to surprises…. Currencies move even though it looked like they could move no more without a slight reverse move but they didn’t!! currency wise I am sitting all in cash as of this afternoon!
Best of luck to all…. Cheer Schmed…
Totally agreed! I’ve lost quite a bit for the fed. It’s ok, i will wait for the chance and make it back. 🙂
All I can say is what a day… what a day …what a day!! Huge wealth transfer just happened in real-time!!
Cheers Schmed!!
Forex Kong. Thanks for providing this blog for us. Just started reading a couple of days ago and this is my first post. I look forward to following you! Sounds like you caught a little bit of the move with JPY.
Schmed. Glad to see you here. Closed my DXY short about 75% of the way down today and closed my SLV puts early this morning. Held Silver future, but didn’t have the guts to convert the SLV puts to calls or add to the futures this morning. Fortunately closed the GDX puts and added to calls this morning. Hedged my Oct calls with Sept puts 3 weeks ago and have been selling them and averaging down on the calls every few days. What a beautiful day! Have the largest position I’ve ever had in GDX calls as we speak. Thinking about adding SLV calls and Silver futures over the next few days. Do you think the shorts margin calls will drive Silver up a couple more days? Indecisive about adding now or waiting for a little pullback. If we get one?
Great having you here washington23!
I actively trade “EXK” as my personal ” silver play” and am going to exercise “even more” patience here.
The ol USD move will likely retrace over coming days, and if the “current correlation” of silver / USD persists – I can’t see rushing in here, as we won’t miss a thing. Depending on the bounce in USD ( which “should” happen ) some fantastic entries in the miners / PM’s can’t be too far around the corner.
Good luck with your trades.
Great post Kong! I learned this lesson years ago the hard way! lol.
With that said, NZD/USD daily chart is looking like a blow-off top to me. I’m going to bite on this and add over time as I see a nice unwind come debt ceiling time. Also, I don’t think we’re completely out of the woods yet with Syria; although it seems we are, the fact that we’re not tapering leads me to believe otherwise.
I have squeeze’s setting up all over the pace here again…… in the 30min TF
Currency wise…. USD.CAD, USD/JPY & USD/AUD
PM’s – both Gold & Silver
All commod’s lining up for a move once this fires…. direction will be posted once I have confirmation if I can stay awake here…. LOL
Cheers Schmed!
Hello Kong,
Love the title of this entry as it is exactly how I feel. I had been watching GDX/NUGT and waiting for it to get into my price range. Then…. when it did, I didn’t have the huevos to pull the trigger because…..”what if Benny does taper a little bit more than expected??? Wouldn’t that be the end of the gold dream?” Arrrrrgggggg!! The noise got in my head.
Anyway, I really feel this is going to be the place where miners, silver and gold finally do begin to their move back up. My hope is that GDX dips back down to 27 before moving up again. I enjoyed your reply to Washington23 and became even more hopeful this might be the case.
In previous posts you’ve spoken a bit about Metals, but I’m wondering if you might elaborate a little on what you believe is happening and will happen. What entries do you see developing?
A couple months back Jim Rickards said -if the Fed doesn’t taper in September, they never will. That being the case, who knows how long this Crazy Train will slam full speed ahead until it comes off the rails (and is that their intent?) QE Infinity….. FOREVER!
Looks like BOJ is taking the revenge trade, by printing more than the FED. Look at those yen pairs go…
In case anyone has forgotten, the general risk market corrected quite hard I think after the last 2 QE announcements. We are even more overbought and levered up w serious headwinds. A very serious move could start soon. I’m on watch. Time to make real money.
Very strong counter-intuitive USDJPY reaction overnight. Don’t believe the hype its a sequel
Don’t believe the hype! Don’t believe the hype!
( hilarious…..an oldie but a goody )
Jskogs. Do u mean it is just a dead cat bounce and it is coming down again for usdjpy?
I’m with you Jskogs, as the announcement of continued QE “should” be perceived as negative.
As far overshot / overbought risk is at this moment, I can only sit tight , look to see the smaller time frames rolling over – and place trades with a similar view in mind.
Buying this would be madness.
Good to hear and thanks for the reply, Kong.
Well my fire’s have triggered a positive move which is kind of expected here…. should work off over-bought conditions before we have another wave…. I just don’t this we are done just yet!! DXY weakness should now flow into late Sept just ahead of the Debt deal!!
I’m looking long USD related trades yes, and imagine that regardless of the “now confirmed longer term decline in USD” the next move ( counter move ) could certainly be a wopper.
As the entire planet now has confirmation of “ultimate dollar destruction” the next move should “equally” catch as many off side as this one may have. It will most certainly coinside with a “risk off trade” ( as well this correlation should now be firmly in place again ) as equity bubble either pops on Gov shut down / debt ceiling talks – or at least takes a healthy pullback.
I will be taking a reasonable holiday “from my holiday” after this thing FINALLY rolls over, and will be combing the beaches for any sign of Bernanke on his…so I can punch him in the face.