Trading psycology

So far we have talked about the need  for creating a trading plan and sticking with it. Nevertheless, frequently traders deviate from their proven path or thoughts and take decisions which can be actually as opposed to their trading plan.

Actual trading decisions are very often driven by the mindset of a person and exactly how he/she reacts towards the market movements. Therefore the key to successful forex trading is to create a trading plan and deal with your trades correctly by ensuring that your psychology and mindset are geared towards successful trading.

I would personally be lying to your face if I said that success in the Forex markets depends entirely on the system or strategy you use, since it doesn’t. There are excatly three main pillars of succesful tradin – knowledge, strategy and psycology and it really depends mostly on your mindset and on exactly how you think about and react to the markets. Having said that, most Forex websites trying to sell some indicator or robot-based trading system won’t tell you this, because they would like you to believe that you could earn money in the markets simply by buying their trading product. I prefer to tell people the facts, and the the fact is that owning an effective and non-confusing trading technique is essential, but it’s just one piece of the pie. The bigger portion of the pie is controlling your trades correctly and controlling your emotions properly, if you don’t do these two things you will never make money while in the markets over the long-term.

So why most traders fail trading Forex?

You have probably read that many people who attempt Forex trading turn out brain moneylosing money. There’s a very good reason for this, and the reason is primarily that most people take into consideration trading in the wrong light. Most people enter into the markets with improbable goals, such as thinking they’re going to quit their jobs after a month of trading or thinking they’re going to turn $1,000 into $100,000 in a few months. These impractical expectations work to foster an account-destroying trading mindset in many traders simply because they feel an excessive amount of pressure or “need” to earn money in the markets. When you start trading with this particular “need” or pressure to make money, you enviably end up trading emotionally, the fastest strategy to lose your hard earned money.


What emotions should you watch for in yourself when trading?

I will write the most powerful emotion that can destroy you and your trading account.


greed fear cycleGreed – There’s an old saying that you may have heard regarding trading the markets, it goes something similar to this: “Bulls make money, bears make money, and pigs get slaughtered”. It basically means that if you’re a greedy “pig” in the markets, you are almost definitely going to lose your cash. Traders are greedy once they don’t take profits simply because they think a trade will probably go for a long time within their favor. One other thing that greedy traders do is increase a position due to the fact the market has shifted in their favor.

Fear – Traders become fearful of entering the market typically when they are a new comer to trading and also when they have not mastered a highly effective trading strategy like price action trading. Fear may also occur in a trader once they hit a series of losing trades or after suffering a loss greater than what they are emotionally able to taking in. To get over fear of the market, you primarily need to make sure you are never risking more money than you’re totally comfortable with losing upon a trade. If you are totally OK with sacrificing the money you have at risk, there’s nothing to fear. Fear can be a very limiting emotion to a trader since it will make them miss out on good trading possibilities.

Revenge – Traders notice a sense of wanting “revenge” on the market when they suffer a losing trade that they were “sure” would work out. The important thing thing here’s that there is no “sure” thing in trading…never. Also, if you have risked too much money on a trade, and also you wind up losing that cash, there’s a high probability you are going to want to try and jump during the market to make that money back….which often just leads to another loss, since you are just trading emotionally again.

How you can obtain and keep an effective trading mindset?

If you want to develop an effective trading mindset, you have to accept certain details of trading after which trade the market using these facts in mind.
You have to always control your risk properly. If you do not control your risk on EVERY single trade, you open the door for emotional trading to consider hold of your mind, and i also can promise you that when you begin down the slippery slope of emotional Forex trading, it may be very hard to stop your slide, or perhaps recognize that you’re trading emotionally initially. You are able to largely eliminate the possibility of becoming an overly-emotional trader by only risking some money per trade that you’re 100% OK with losing.

You need to not over-trade. Most traders trade way too much. You should know what your trading edge is with 100% certainty and then ONLY trade when it’s present. Once you begin trading even though you “feel like it” or because you “sort of” call at your trading edge…you kick off a roller coaster of emotional trading that may be very hard to stop. Don’t start over trading and you’ll likely not become an emotional Forex trader.

You need to become an organized trader. If there is something that is the “glue” that holds all of the points I’ve discussed within this part together, it is being an organized trader. You have to think of Forex trading just like a business rather than like a trip to the casino. Be calm and calculating in all your interactions with the market and you should have no problem maintaining your emotional trading demons away.

The bottom line is trading forex is really a highly mental game, and your trading mind se and discipinet will help you to overcome all difficulties.

Tags: , , ,