This article is taken from the Forex Journal (June 2008 issue).
The author, Brett N. Steenbarger, Ph.D. is Associate Clinical Professor of Psychiatry and Behavioral Sciences at SUNY Upstate Medical University in Syracuse, NY and author of The Psychology of Trading (Wiley, 2003). As Director of Trader Development for Kingstree Trading, LLC in Chicago, he has mentored numerous professional traders and coordinated a training program for traders.
- Brett N. Steenbarger helps us understand the stresses faced by traders, their coping styles, and how these affect emotional well-being and trading success
A trader of the Australian currency market is long versus the dollar, expecting that economic weakness in the U.S. will hold down American interest rates and reward the holding of higher yielding currencies. Suddenly the U.S. government reports a much higher than anticipated inflation number. Short-term yields skyrocket, as traders anticipate monetary tightening by the Federal Reserve. Immediately the dollar rallies versus other major currencies, and the trader’s position goes into the red. His heart rate increases, as does his rate of respiration and muscle tension. Thoughts race through his mind: Should I take my losses? Should I stick with my longer-term outlook? The market is gyrating up and down, lurching dozens of pips in a matter of seconds. The trader curses his decision to enter the position in advance of the inflation report. Reluctantly, he takes his losses, wondering if he is selling at the worst possible price.
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