Forex Trading Psychology
Forex Trading Psychology
What is Trading Psychology? Most people do not know that psychology is used mostly on everything that happens in the business sector. Some have done psychology when a freshman in college but have never known that they could use it one day on their business or anything that they do. Psychology encompasses how people can be motivated or deterred and also on how people think, feel and act the way they do. Psychology also you to understand human nature and their emotions. So how does psychology and Forex trading influence each other?
Forex is the foreign exchange and also can be known as currency trading. It is where different currencies are traded depending on the exchange rate between them. Psychology is used in trading to help your trading to be a success. You might be wondering how it can do that. Most people have similar thinking patterns. Also, most people have similar emotions in the trading sector. That is how you can learn the differences in the way winning and losing traders think.All human beings are emotional, and they all have distinct psychological traits. These characters accumulate to different personality types. When different traders get together, their psychology behavior, overall, creates the chart patterns that provide price actions. The chart price patterns excite technical analysts. Everyone experiences different emotions when making or losing, money.
Researchers have studied forex trading psychology extensively. The research was to determine what type of personality type and trading mindset are best in generating consistent profits when trading. Most people fail in forex trading due to anxiety and the emotions hence uncalculated trading happens. Uncalculated trading can cost you lots of money.
Emotions to Watch Over When Trading
People often develop different emotions when close to realizing their full potential or when they feel they might be losing. That is the reason why traders need to guard themselves against the feelings and know how to go about them when they take place. Traders should watch for themselves against the following factors.
Anxiety is the feeling of having intense fear and distress and also the sense of being overwhelmed by nervousness. When you fear, the panicking increases thus all judgement is suspended and all your worst emotions and fears set in. when all this happens, you do not get to see a potential in what you are doing all you see is disaster and you become a negative on all that you do.The panic will make you impatient thus sell instead of holding back or buy when it’s the right time to sell. It will make you make great losses in capital and also on your confidence in navigating the forex markets mostly in the long terms.
When you have anxiety, fear falls in. the fear will make you to be unable to enter the market. it mostly happens to traders who are new and have not mastered a good trading strategy yet. Fear also comes in when a trader hits lots of losses. That the reason why you need to not risk more money than you are willing to loose. It can make you miss out so much on new trading opportunities.
When a trader makes profits, most get greedy on making more and more. they then tend to risk more since they think and feel that a trade will be always on their side. This can make them loose so much than they ever thought they would and destroy their trading account.
Euphoria is the feeling of happiness. It is a good thing but when you hit a significant profit, it can damage you. It makes you over confident when you hit a large string of winners. You tend to forget that any trade can loose and also on the real risks of the market.
Revenge happens when a trader has made a loss on a significant amount of money. It is same as you lost. It is the same thing that happens when you make a loss and want to jump back to make the lost money back and this will lead to another loss.
How to control your mindset
You have to do lots of things right for you to be able to maintain an effective forex trading mindset.
- You have to know your trading strategy and also master it. You have to know it inside out and know how the trading market should be like before you take any risks.
- You need to know your trading edge and trade when it is present. Do not over trade for this will help a lot not to be an emotional forex trader.
- Always know how to manage your risks properly if you dot you will become an emotional trader thus you going to make more loses than before. Expect to lose on any trade. By doing this, it will help you deal with anything.
- You also need to know your start point and end point. It will help in making you fearless and your mind focused.
- You need to know the potential profits you might get and also the potential losses you might get. It will help you know what you expect in the future and get guidance on what to do to get profits and what to avoid not to get loses. But if it ever shows that you will likely get loses, you can join a smaller lot size. It will help in controlling your mindset about what is about to come.
- Lastly, for you to be a good trader, you need to be organized. You should have a trading plan and journal it will help in keeping your emotions at bay.
Trading psychology is important in trading just like any other attributes like experience and knowledge. For you to make consistent profits, you need to learn how to take care of your emotions whether you are winning or losing.