The Psychology of Forex Trading, How To Get Your Mind Right
Trading is much more about feelings and knowing the feelings of other participants than anything else.
In the beginning of your trading career it's very easy to fail, this is because all beginners think it's easy to make money and instead of first investing their time into ecucatiing themselved or recieving education such as our free forex trading education, a lot of begginers in forex trading just jump straight in at the deep end. Sometimes beginner's luck can provide good outcomes, but winning long-term is very difficult on the financial markets without any forex trading education. It's no coincidence that a very small percentage of of Forex traders are able to accomplish consistant profits.
If you do find that you are not making succeful trades from the beggining, its worth noting that the initial failure is a natural stage in the process of a Forex trader's growth. Markets aren't made for us all to become millionaires overnight.
Financial markets are the only place where both amateurs and professionals square off. And professionals, knowing the psychology of small players, know how the majority of traders will react in a given situation. They use that to their advantage to build up positions. So bare this in mind going forward in your Forex Trading Career, It may be better of for you to think what the big player will do and piggy back on that rather than taking your chances against the trend.. as the saying goes "The Trend is your Friend"
It has been said before that a Forex Trader must understand that regardless how good he/she becomes in analysing and forecasting the forex market, it will always remain undetermined. This is because market participants constantly change and we don't know how big positons may be or how they may be turning the market in the next few days.
So what are some of the main things a Trader will do to tilt the odds of succes in their favour?
1) Self assesment
By defintion, this is the evaluation of your own decisions and actions. So why is this important? As a Forex Trader you are your own boss so the buck stops with you, In order to improve you will need to be analysing the things you did right and try to repeat them and the things you did wrong and try to avoid making the same forex mistakes again.
2) Control Emotions
Emotional trading will not lead you to consistant success. In fact, a lot of reports and articles will tell you that those who are trading Forex with their emotions end up losing money.
What do we mean by controlling your emotions? An example of someone trading with emotions is a forex trader that does not close a position because its at a loss. The reality is you will have some winning trades and you will have some losing trades so the secret is to limit loses so that your gains can outweigh your loses and you might end up with a profit. If you are not closing losing positions then it could well continue on the losing streak and a small lose could end up big enough to wipe out the profits you have made from your succesful positions. It goes without saying you don't want to be in this situation so take your emotions away, understand you will have some loses, accept that and focus on capitalising on your succesful positions to maximise profits.
What are some of the other emotions you shouldn't allow to effect your trading?
This trait is often seen a lot in those begginging to learn forex trading. Fear of entering the market and placing trades can often lead you to missing a lot of good opportunities. Part of the learning process is the practical aspect of forex trading you will never learn unless you try. Fear of trading could also arise from those who have had a string of losing trades, the key thing you can do to avoid being fearful of trading is managing your risk, make sure you have stop loses in place and ensure that you are never risking more than you are comfortable losing. Understanding your maximum exposure can reduce the risk of being paralysed by fear in Forex Trading. Don't be fearful just manage your risk.
You may have heard of the age old saying when trading the financial markets "Bulls make money, Bears make money and Pigs get slaughtered." What you can take from this saying is that those that are greedy end up killing their trading account with loses.
So, how can you spot a greedy trader? This is quite an easy one. Traders that never take profit because they want a winning trade to make more and money can be seen as a greedy trader. Also another form of greeding trading is a trader who adds money/increses the risk of their trade simply because its currently moving in their favour.
In order to avoid being a greedy trader you would be wise to remember to take profits, if you have a target and you have hit it, take the profit, simple as that. The second thing you can do is stick to your risk management strategy, if you have a maximum trade size, stick to it, don't increase your risk just because you think you can make more money, this is greed and more times than not it will not end well.
While feeling happy about succesful trades is a good thing, you should not let this success get to your head. It can actually affect a Trader negatively if he/she find himself on a big succesful streak. You may find that you feel invincable and that you have mastered trading. This will not be the case, the market can be unpredicatble and you should never take some succes now as guaranteed succes in the future, keep your wits about you, make sure you stick to your strategy and to your risk management and you should be able to avoid this pitful.
If a traders have some losing trades, they may experience the feeling of wanting revenge on the market. This could lead them to getting into positions too quickly that may not have been well researched and end up losing more money. The truth is the market doesnt have anything against you if you make some losing trades, it happens. Remain calm do not seek revenge and stick to your plan. Consistancy and risk management is the key to long term success when trading the financial market.
We hope you found this article interesting and useful. If you have enjoyed reading this article from Trading Education be sure to click the like button and share it with your friends!