No matter how reliable the analysis or indicators you use, the biggest challenge in forex trading is your psychological condition.
To produce optimal results in forex trading, it is very important to have good theoretical skills, use of accurate strategies, follow political and economic news, and learn what the impact is on market trends. But all these skills cannot guarantee successful activities on the market, if not balanced with an understanding of forex trading psychology.
Not only statistical indicators, traders’ emotions also influence the results of the trades performed. Everyone who wants to take advantage of Forex trading as a source of income must understand that studying trading psychology, self control, and discipline is the key to forming competent traders.
The following characteristics of psychological emotions, often arise when you go into the world of forex trading:
- Greed. This dangerous emotion often affects beginners and experienced professionals. As a result, the desire arises to get instant profits.
- Excitement. Although at first glance it sounds good, being too happy can make traders suppress common sense and take high-risk decisions when looking at opportunities to make profits quickly.
- Fear. It is not natural emotion to appear when trading, but it is dangerous. If you are afraid to open a position or fear loss, it is better to stop watching the chart movement for a while and rest.
- Hoping too much. In forex trading, it’s very natural to want big profits. However, expecting too much profit to ignore other analyzes will make you like a gambler who is only risking your fate, not a trader.
To overcome the emotional factors that affect the performance of a trader, it is advisable to study the forex trading psychology. Now, let’s see what trading mistakes this emotion can cause.
Psychological Mistakes of Forex Traders
- Lack of analysis when making important trading decisions. Inexperienced traders often catch the price correction as a trend change. As a result of that greed, traders choose the wrong entry point to the market and suffer losses. Therefore, it is very important to read financial news regularly, one of them is through the Market Overview.
- Fear and emotional distress before a trend reversal are problems that often occur in beginners. Experiencing impatience and fear of losing a portion of the deposit, these traders prematurely closed the transaction and actually lost money.
- Impulsive movements that are not fundamental. Traders impulsively open orders, while prices jump sharply. Sometimes it is profitable, but it often brings losses because decisions are made spontaneously, without detailed analysis of the market situation.
- Excessive trust in Expert Advisors or trading robots, so often these scripts are not controlled. Trading robots that are incorrectly configured cause irreversible consequences. Moreover, computer technology can respond too late to market movements.
How to Overcome Correct Trading Emotion
Trained traders adhere to general rules that apply as follows:
- Have a clear capital management, taking into account the current price zone and compliance with money management rules. This will help minimize risk.
- Make a trading plan. Calculations that are thought through carefully and in detail, will prevent you from trading emotions. You cannot deviate from the planned procedure.
- Sometimes it’s better not to take action, especially when the market is volatile. There are times when you can reap a large profit target in one trading day, but there are also moments where you are better off waiting, checking for news to have an impact on the Forex market, gathering information and comparing facts. Competent traders always know when to act and when not.
- Need consistency and repetitive training in order to master new knowledge. The time needed is very diverse from one individual to another individual. In fact, half a year is sometimes not enough to understand certain market sentiments and appropriate trading strategies. Therefore, theoretical knowledge must be balanced by practice.
After reading the article above, you now understand that trading psychology plays an important role in Forex trading. Forex trading is not a game in a casino, but a job that requires seriousness. Therefore, mastery of trading emotions will make decision making more effective. In addition, you can practice free forex trading on a demo account.