Psychology is simply your state of mind. As with any other skill, competence is irrelevant if your state of mind isn’t right. This is particularly true for Forex traders.
Trading in a live environment can cause significant mental stress – so you need to be sure you have the ability to deal with it.
Keeping psychology in check is critical. Those that don’t do this run the risk of making mistakes, which damages their profitability in the process.
A classic example of this in Forex is “chasing a trade”. This is where a trader abandons their principles of risk management in an attempt to quickly recover losses.
This move is often a result of traders being unable to move on from a loss.
Trading psychology is really driven by two things. The first is thirst for constant profitability.
The second is a fear of failure. Most traders experience these feelings.
For me, these feelings are at the root of some common scenarios traders face throughout their career.
In the rest of this article, look at these scenarios in detail and explain how to react to them
The Get Rich Quick Trader
A goodpercentage of traders want to trade Forex in attempt to get rich quickly. Thisis the wrong mindset and will lead to losses.
The truthis, to get rich quickly in Forex, you have to trade large volumes
Remember, leverage isessentially capital that a broker lends to a trader to allow them to makebigger trades. It can significantly amplify a trader’s profitability.
But thisprinciple also applies to losses. In the wrong hands, leverage can lead to allaccount capital being lost.
It’s a dangerousgame, especially for inexperienced traders.
In fact, I’d say this type oftrading is closer to gambling than professional trading.
If yourmotivation to trade Forex is to get rich quickly, it’s time to alter yourpsychology.
Firstly, youneed to accept that Forex is no different than other profession or skill.
Becoming competent requires dedication over a sustained period of time.
Allsuccessful traders spent years mastering the basics of Forex trading.
Secondly,you need to accept that your expectations.
Wealth fromForex trading is acquired over time. The best traders tend to be conservativein nature – that’s to say they don’t take unnecessary risks.
Instead, theyfocus on making small but consistent profits.
The Indecisive Trader
Indecisivenesscan limit a trader’s success. This issue is rarely discussed in tradingpsychology – but it’s an important one.
If you’re anindecisive trader, there are easy steps you can take to change yourbehaviour.
Firstly, it’s important to recognise that being indecisive isn’tnecessarily a bad thing.
In fact, I indecisive traders who are often the mostthoughtful. However, this can become a problem if your indecisiveness leads toinaction.
To become moredecisive in your trading approach,write your intentions down in a trading plan.
This should document your chosen trading methodology (which should be ) – and your risk management strategy
When it comes to openinga trade, write down the reasons behind your position, along with stop loss andtake profit levels.
If you can’t do this, it suggests you’re lacking confidencein your analytical ability.
Taking a Big Loss
When a trade moves against you, resulting in a big loss, it can be tough to take. Big losses usually occur when a trader is feeling over-confident.
This over-confidence can lead to corner-cutting when placing a trade. This might be something as simple as not setting a stop loss level.
You can keep over-confidence in check by strictly following your risk management strategy. This should prevent big losses from occurring.
If you have recently experienced a big loss, your confidence is likely to be low. But you can build from this experience.
Take your loss as an important lesson in risk management. Also, put rules in place that will prevent this kind of loss from happening again.
Are You Taking Care Of Yourself?
The body and mind are interconnected. It’s why those who exercise regularly often enjoy better mental health.
Unfortunately, Forex trading can easily become an unhealthy profession. It’s not uncommon for traders to be constantly switched on and monitoring their open positions.
The evolution of mobile trading in particular has made it much more difficult for traders to disconnect from their trading.
If you want to be successful in Forex, you need to strike a healthy work/life balance.
This means you need to spend adequate time away from your devices. Here’s a routine you try and follow:
- Set clear trading times during the day (for example 09:00 to 17:00)
- Take regular breaks away from trading desk/device
- Eat well and take regular exercise – this will help you maintain good mental health
- Do not to check your trades on your smartphone outside of your trading times (if you have set appropriate stop loss/take profit levels in accordance with your risk management plan, checking trades constantly is unnecessary).