Maintaining control of your emotions when currency trading is a key requirement for success. Forex trading requires you to keep a fine balance between both caution and your desire to make profits. Greed is commonly cited as a reason for many traders downfall, but equally, being too cautious can similarly damage your results.
How Psychology Can Affect Your Results in the Forex Market?
In recent years much work has been done help us understand the psychology of trading in an aim to help traders better deal with their emotions when trading Forex.
Many of these approaches have been developed for many years in other spheres and can be used and adopted by traders to help them increase the performance from their Forex strategies. Simply employing a Forex trading system is just half of the equation. Many traders focus too heavily on the Forex systems that they use but this is only one part of the equation. A system is only a set of documented rules for trading. It still needs to be both executed in the correct manner and importantly, with the correct mindset.
Most commonly the failure to produce results when trading is not the fault of the strategy used. It is not even the lack of education of the Forex trading. Instead it is the incorrect Forex trading mindset of the trader that creates a barrier to success. Traders often practice their skills on demo accounts and spend time reading much analysis which are both much needed activities, but they fail to address the fundamental issue: themselves.
What separates successful Forex Traders from unsuccessful Forex traders who fail is an ability to handle the pressure of trading and keep their emotions in check. Of course some traders will be much better at this naturally due to their psychological makeup. Others will have to learn the skills to prosper. Good traders won’t flinch when their trade goes underwater and they take drawdowns as just part of the business. They will have limited their exposure to the markets and will have an informed confidence when making decisions.
Top traders will be able to trade assuredly because they have carried out due diligence on their systems and formulated a plan of action before they enter the market. They will also have spent time working on a proper trading plan, detailing what they are aiming to achieve from each trade and how they intend to achieve this. Importantly they will of course stick to this plan without deviation.
As with most things in life, preparation and understanding are key. So to is having a level of self awareness. This allows you to note how you react to events when trading so that you can learn to make the correct responses when the same situation arises again. Comparing your response to market events can show you a great deal about your reactions. When you trade Forex, being aware and in control of your emotions is essential if you are to become profitable. Don’t rely on your Forex trading system alone to make you profits.