Psychology of Forex Trading – Part 2

5

Overcome your emotions

One of the reasons why trading is so difficult is that it requires you to act contrary to your natural human emotions. For example, it feels much more natural to buy something that is going up than something which is going down. However, making money in trading requires the exact opposite – that is, to buy low and sell high.

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Here is the first part of Psychology of Forex Trading

Similarly, when you are in a trade and you are losing money, the natural human response is to wait, in the hope that the trade will eventually turn around. Of course, this greed often just leads to bigger losses and the best response is often to cut your losses as soon as you can. And there are similar problems when holding a winning position, since you do not want to take profits too soon out of fear, or too late out of greed.

This dichotomy between natural instinct and the psychology needed to beat the markets does present its own opportunity however. Since, by becoming aware of these limitations the successful trader can find the times when the market is beset by panic, or overcome with euphoria. And it is at these times that the best trades can often be found.

Manage risk

One of the key elements to overcoming your emotions is to manage risk effectively. Since it is money that can have the biggest effect on your emotions, you must trade at a level that is comfortable enough for your own personality. Trading too big simply increases your emotional responses meaning that making the right trading decision becomes almost impossible. Similarly, trading too small can lead to overtrading and complacency. To manage risk successfully you need to come up with a strategy that works for you and then be consistent at implementing it. Because all it takes is one trade that is too big to completely derail your mindset.

Never stop learning

One of the great things about trading is that the financial markets are continually evolving. This means that trading often becomes an all-consuming endeavor creating immense satisfaction for those who take part in it.

Every day brings new world events and possibilities for profit and it is a game of such complexity that one can never be bored. It stands to reason then, that the successful trader is one that is continually learning.

To succeed, it is important to always learn about new technologies, about new events, new strategies and theories. Naturally, this also means to stay humble, since the market has a knack for destroying traders who are too arrogant for their own good.

Arrogance is the best friend of complacency so it makes sense to always approach the markets with the same optimistic but cautious mindset.

And to this end, it is important to remember the final necessity for winning at trading – Perseverance.

Indeed, the path to riches is strewn with the corpses of countless traders who tried and failed in their conquest for trading fulfillment. Successful traders come in many different forms and use many different techniques. However, there is one specific trait that all successful traders share – they never give up.

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