Hello, dear readers! I’d like to talk to you about the Forex trading psychology, as many people underestimate its impact on their possible success on the market. They assume that it depends mainly on a trading strategy and risk management, dismissing the psychological aspect. However, it influences the final trader’s mindset and the attitude to the Forex market. That is why buying robots and following the trading signals may lead to losses and leave you without your deposit in a very short time.
In fact, it is really important to develop a trading plan, but it is just a piece of the pie. You need to know how to use your trading system correctly and how to react to the market behavior without panic, as it may ruin your previous successes in a second. So, whether you believe or not that the psychology of the Forex trading really exists, it affects your trading. It is one of the things that differs a successful trader from a losing one.
Let’s begin to dive into the details of the Forex trading psychology!
Why do many traders lose?
I can bet you have heard that most newbies blow their accounts while trading on Forex. Such people often say that they were scammed, that someone has stolen their money, but they never blame themselves. But their main problem is the wrong attitude to the Forex trading itself. I have met dozens of beginners who suffer from their own unrealistic expectations. They expect that the Forex trading will make them rich, that they will make $100000 from $1000. This means that their thought will never be the same to the reality. Even experts say that making 10% of the initial depo in a year is a great result, and not everyone is able to achieve it. So, what do you think, will one be able to turn a thousand of dollars into 100 thousand in a couple of months without any proper experience? It is doubtful!
The cause for losing money is the idea that a trader needs to make money and achieve success. Such the emotional state makes them open new deals nearly every minute, without any analysis, and without following the trading plan.
Remember, that you don’t need to open deals because you feel you have to. Do it only after you get reliable signals.
What emotions should Forex traders watch?
When trading Forex, you can feel a great variety of emotional states. The big question is: ‘What are they? How can we define such states and avoid them?’ I hope my further explanation could help you!
Greed: the most common feeling
Most traders who have just began their Forex journey want to make more money and wait until their trade will go on further and bring them a great win. However, it rarely leads to successful trading as trends may be volatile and can change their movements very often. Risking too many lots per one trade is the next mistake that traders make due to greed. If you have attended some trading courses or read books with the Forex basics, you may know that it is always better to risk not more than 2% of your capital. Some people on forums (I’ve met such posts by myself) say that these are fairy tales for beginners, but I personally don’t see anything wrong with this rule. It helps to control your greed and save your funds in case of a losing trade.
Fear of entering the market and exiting from it
I can say that this one is natural for people who take the first steps into the Forex world and haven’t mastered a certain strategy. If you are sure that there are signals for opening or closing a deal, you would do it without hesitation. This emotion can also come to you after a losing trade, especially if you have lost more money than you could afford. It is a natural feeling for traders. How to manage such situations? Treat the market with logic, always analyze its technical patterns and make sure you don’t risk too much. You won’t fear anything if you’ll find the trend and know that your funds will be safe in case of a losing deal.
The wish for revenge
Traders often want revenge when they were planning that a deal would work out, but this didn’t happen. The best advice here will be to remember that Forex is an unpredictable market and there are no sure ways to win on it. Once you start, you should keep in mind that your deal may reach the stop loss level even if you planned it well. This happens and it is normal for the market you work with. It is in its nature! If you still want revenge the market, just imagine how much can you lose while doing that. Do you need it? Better turn your trading terminal off, think what was wrong in your trading, develop your trading system, read an article about the trading psychology or even drink some tea! And just after you have calmed down, get back to work!
Feeling euphoria after closing winning trades
I bet that many traders are enjoying this feeling. I know that as I enjoy it by myself. Nevertheless, this feeling can cause certain problems too. People may become over-confident and risky because of the euphoria. Of course, you can wish to enter the market just after you have closed a couple of successful deals, but there are no guarantees that it will work the same way. I recommend you being cautious and opening deals only after finding strong signals for that.
How to create an efficient Forex trading mindset?
The best way to become a successful trader who will earn money on Forex for sure, try to create the proper understanding of psychology. It may be hard and you will need to take efforts to learn to control your emotions. The good news is that it’s not so difficult as it may seem for the first time.
Just accept certain facts about the Forex market as inevitable normal things. You may keep in mind that trading can be profitable but not to those people who go ‘all in’ and risk a lot. Maybe, you should learn more about the long-term trading, by the way, you can read about this in my older posts!
The next most important point is mastering a trading strategy of your choice. If you understand how the market works, when it is better to enter it and exit from it, you will be more confident and enter it without fear.
Find out your risks for all the trades, another way your emotions will come and ruin your plans. Do it for every deal, and never place any of them before calculating your potential risks and profits. Forex is more about analysis and math, not the intuition.
So, I wish you success and profitable trades, my friends!