Forex psychology

Forex (or trading) psychology is very interesting and important as well as difficult for study. Every single Forex trader, who is successful on the market knows, that the technical knowhow of the actual mechanics of trading the Forex (foreign currency exchange) market is not all you have to have, but recognizing the fact that you should be a winner – the main psychology of trading well known as Forex requires mental discipline.

While the main idea is to capture as many Pips (Price Interest Points) as possible, just to make your profits, ruling the heart in Forex trading is one of the thing that your head should focus on. Don’t get carried away by the thrill and excitement of the moment! Having a good strategy or well-built plan in place before you start trading is one of the main keys, as well as predetermining your exit point. You will have losing trades (every Forex trader does), within the Forex trading experience.

The art is in knowing when to let go of these, and not hang on in the hope that they will turn around and start making money. You don’t need to persist just to try and prove yourself, and keep lowering your stop-loss order in anticipation of an upturn in the market that may not come for some while. Is that right? The advance and smart forex traders also know that there will be another trade along soon. Knowing when to exit from profitable trades, too.

Placing a stop-loss order is always a golden rule, along with every entry order, in order to prevent any loss from sinking too far. Trader, who doesn’t place a stop-loss order probably is going to lose a lot of money. Letting your winners ride and cutting your losers is acknowledged maxim in forex trading.

Also involving emotional control, discipline and following the rules – some things you should keep in your mind while you are trading. Being too greedy is a bad habit. While it is great to be passionate about what you do, patience can be a virtue when Forex is concerned. Don’t resist the urge to gamble and don’t let your emotions hold sway. You should have the the courage to stay with the rules and stick with your plan. Believe in yourself for that winning system.

Some of the main keys, of course, is recognizing these price patterns – trend, to know when to place orders in present-day trading. Research has shown that those who trade ‘with the trend’ improve their chances of success. Don’t cloud your mind with non-essentials such as wondering about the reasons for price movements. In other words, if the market trends show your judgment to be correct, stay with the market for the maximum gain, according to your own risk-to-profit boundaries. If the market starts to go against you, take your profits and get out.

Most of all, gain an understanding of the charts, for they represent so much and are relatively easy to interpret and use. Forex trading develops strong trends, and although a more volatile market, predictability is one of the advantages of this market over others such as futures and stocks. Technical analysis is the most precise way of trading Forex, with charts showing the historical data, which over time has patterns repeating themselves, and can be used reliably for predicting future trends.

It is wise to open a demo account and to practice trading ‘on paper’ first before risking your money on the forex trading market. If you’re unsuccessful in this, it is unlikely that you will suddenly become an expert trader in a ‘live’ account, when using your own finances adds to the pressure to succeed. Never risk more money than you can afford to lose.

Forex trading mistakes and what to do with them

1. Take action.
Taking proper action is the last and most important step. In order to learn, you need to change your behavior. Make sure that whatever you do, you become “this-mistake-proof”. By taking action we turn every single mistake into a small part of success in our trading career. Continuing with the same example, redefining the system would be the trader’s final step. The trader would put a system that perfectly fits him or her, so the trader doesn’t find any trouble following it in future signals.

2)Belief change.
Every mistake is a learning experience. They all have something valuable to offer. Try to counteract the natural tendency of feeling frustrated and approach mistakes in a positive manner. Instead of yelling to everyone around and feeling disappointed, say to yourself “ok, I did something wrong, what happened? What is it?

3) Measure the consequences of the mistake.
List the consequences of making that particular mistake, both good and bad. Good consequences are those that make us better traders after dealing with the mistake. Think on all possible reasons you can learn from what happened. For the same example above, what are the consequences of making that mistake? Well, if you don’t follow the system, you will gradually loose confidence in it, and this at the end will put you into trades you don’t really want to be, and out of trades you should be in.

4) Identify the mistake made.
Define the mistake, find out what caused the mistake, and try as hard as you can to effectively see the nature of that mistake. Finding the mistake nature will prevent you from making the same mistake again. More than often you will find the answer where you less expected. Take for instance a trader that doesn’t follow the system. The reason behind this could be that the trader is afraid of loosing. But then, why is he or she afraid? It could be that the trader is using a system that does not fit him or her, and finds difficult to follow every signal. In this case, as you can see, the nature of the mistake is not in the surface. You need to try as hard as you can to find the real reason of the given mistake.

The earlier you get your bad lessons, the better for your overall experience. No mater how good you consider yourself prepared, after demo trading lessons, you have no idea of the forces ruling on the real market.

In fact the worst enemy you are going to face in the very beginning is not hiding behind the walls of the global currency trading centers. Your most dangerous foe is hiding deep inside of you. That enemy is so powerful that you will be amazed how quickly it will wash away all your carefully considered decision.

Every trading activity is in fact participating in a battle. Winning the battle is a matter of knowledge, skill and experience. If you miss any of those you are going to join the long line of losers. Some says that 95 to 99 % of the traders are lining up on the loser’s side. The correct approach is: consider each pressing of the Buy/Sell button as entering a battlefield.

If you enter it without having a knowledge, skill and experience on how to win, you are destined to fail. You may have some lucky trades in the beginning, though. That, by the way, is the worst case scenario for the rookie in trading. How to win the battle in the currency market? It is easy to answer that question, based on the above approach prepare yourself for the battle. If you treat currency market activity as a hobby you’ll ultimately lose all investments there. If you treat it as a business you still may loose everything.