Psychology of Forex Trading – Part 1

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Whether you are new to the markets or you are an experienced veteran you will probably be aware of the huge role psychology plays in successful trading.

Financial markets swell on the hopes and fears of its participants, which often leads to market moves that no one would have predicted. Indeed, you only have to make a small trade to experience the emotions that come with putting your money in the hands of the market.

Guest post by FXTM

Know yourself

The first thing you must do in order to conquer the psychological aspects of trading is to know what makes you tick and what your trading personality is. What is your tolerance to risk and what do you need to do to ensure you make the correct trading decisions?

If, for example, you find it hard to tolerate big intraday swings you may wish to try swing trading instead of day trading. If you find your emotions causing you to frequently change your mind about your trading decisions, then you could consider developing a system.

In the same way, it is always possible to improve your mindset, so think about keeping a diary or trading journal detailing your trade rationale and your emotions at the time of each trade. Continually re-evaluate your diary so that you can see where you are going wrong and how you can overcome your limitations.

Be positive

Ed Seykota, one of the best traders of all time, is famous for saying that ‘everyone gets what they want out of the market’, which basically means that if you want to lose you will lose and if you want to win you will win. It sounds ludicrous and simplistic but Seykota has touched on the fact that people often bring a lot of baggage and personal conflict to the market which can subconsciously derail them from making the right decisions. The best traders therefore tend to be grounded and level headed and have positive expectations for each trade.

To stay positive, always remind yourself why it is you are trading and remember to keep your goals in sight. Make sure to visualize yourself reaching those goals and keep up a positive internal dialogue as often as you can.

Also, give yourself clear rules in order to help separate your emotional self from the market and try to surround yourself with other, positive people with similar goals. Try to take regular exercise, mental and physical, and make sure to give yourself a break when tired or simply if you just don’t feel like trading. Many traders try to battle through such periods of trading fatigue and wind up giving weeks or hard earned cash back to the markets.

Here is Psychology of Forex Trading – Part 2

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