Hello and welcome to another edition of the bull vs the bears. Today We are going to talk about having the right mindset for forex trading. Inn short we will be looking into the psychology of forex trading.
If anybody ever tells you that prosperity in the forex market depends on your forex strategy , Ask that person” What have you been smoking?” Yes a solid forex strategy helps but that’s partly the story. you see success as a forex trader largely depends on having the correct trading mindset, your thought process and the way you respond to the movement of the forex markets. If you go about chasing after the hottest trading bot or fancy indicator you are going to be sorely disappointed You should rather be focusing on cultivating a positive mindset and managing your trades and emotions properly. If you fail to do these two things you will just be chasing the shadows of the market and you will hemorrhage a ton of money too.
The first question we need to ask ourself is:
Why Do Most Forex Traders Lose Money?
The answer is very simple. Most forex traders have this weird fantasy of making millions overnight.T Consequently they lose all their money, leaving a nuclear-sized crater in their trading accounts. This mindset comes about as a result of unbearable pressure the put on themselves to make these huge profits. And when you start out trading this way, you react with your emotions instead of thinking logically. Naturally youb end up blowing your trading account.
The next question you need to ask yourself is
What Emotions Should You Avoid While Trading?
Here are some toxic emotions you need to avoid like the plague while trading.
If you act like a greedy price you will in all likelihood lose your money. The greed comes in when you don’t take your profits Don’t make th costly mistake of not taking the profits because you think the trade is going to run forever in your favor. The forex market can do a 360 on you at any time. That’s why the take profit option is there for you to make the exit when you price hits your target.
Another habit you should avoid is adding to your trading position simply because the market has moved in your favor. You only add to your trading position if it’s founded on price action logic. Anything else is just pure greed. Of course risking too much on one trade is also born out of greed. Too much greed will most certainly blow up your account.
Next up is :
Fear can hit you two ways. First it can hit you if you are just entering the forex market for the first time and have not yet developed a trading strategy on which you place your trades. Even worse, fear can also grip you when you lose successive trades or when you sustain a loss so large that you suffer a humongous emotional breakdown, h
Now I can hear someone asking”How do I overcome those demons lingering in my head?”First of make sure you decide how much you can afford to part company with in the event that you lose a trade. This is very important because the losses are going to happen. Just make sure you get that through your head. Once you get that sorted out you are able to move on when you lose a trade. There is one thing you need to understand about fear. Fear causes you to miss out on great trading opportunities. If you want to take advantage of these trading opportunities, get rid of those demons in your head.
How many times have you said to yourself”I’m going to get back at you guys for blowing up my trade?” Listen, don’t blame it on the forex market. The thing is there are no guarantees that every trade that you enter in will be a winning trade. This why you need to develop a trading edge. If your trading edge doesn’t exist don’t trade. It’s a simple formula most traders just don’t seem to apply. Now don’t ask me why because I have no idea either.
Also revenge is also borne out of a need to jump back into the market to make for what you lost on the market. Of course this will result into a loss more humongous than the previous loss, a loss largely based on emotional rather than logical trading.
Next up is:
Dont get me wrong! I have nothing against Euphoria. In fact euphoria is a good thing. But it can also work against you especially when you make a huge profit or you chalk consecutive winning trades. Overconfidence kicks in and all of a sudden you become swollen headed , thinking that you are the biggest thing since corn bread. Then all of a sudden, you experience back to back losses and you are like “Hey what’s going on here.”
Of course you are tempted to jump back into the market to make up for your losses(See a pattern developing here?). That’s your emotions going into whiplash mode after suffering those humongous losses. You are so overconfident you fail to see the red flags teling you that any trade can be lost. Like I mentioned earlier if you have your high probability trading edge, you should be able to make a fair amount of profit in the long term. Just make sure you apply discipline and patience. To borrow a line of a m song by legendary R&B group Midnight Star, Don’t force it. Just chill out and let it flow.
Now that we’ve gotten the emotional cancers out of the way, it’s off to the question of the day. Which is
How Do I cultivate The Right Trading Mindset?
The first thing you need to do is:
Know Your Trading Edge and Master It
You need to know your trading edge like the back of your hand. Your trading edge is your set of conditions that have to be present on the market for you to part with your money. That gives you that mental edge over the other traders. You can’t be sitting there waiting for the market to part the the Red sea before you make your entry.
Here is a very simple piece of advice a veteran trader gave me a few months ago. She simply said “If your trading edge is not present on the market don’t trade.” It’s as simple as that.
Next up is:
Manage Your Risk Properly
If you value your cash you’d do well to manage your risk properly. If you do not control your risk on all your trades emotions take over your brain. And when that happens you know disaster starts knocking on your door. What’s so scary about emotional trading is that you are don’t even realize your emotions are kicking in. It’s like an adrenaline flood. You’re just gambling instead of making use of a well thought out trading strategy.
So how do you avoid trading emotionally? Only risk money you can afford to part company with per each trade. Go into the trade with the mindset that you could lose on a given trade given what you know about the forex market. When you get that sorted in your mind you won’t cry over spilt milk that often.
Next up is
Do Not Over-Trade
I cannnot stress this enough. over-trading will most certainly destroy your trading account. Like I mentioned a few minutes ago, only trade when your trading edge is present. Don’t trade when you feel like it or when you are only 50% sure your trading edge is present on the market. If your mind starts wavering, the market will most certainly make you pay for your uncertainty.
Once your emotions kick in they are hard to stop. It’s like an onrushing flood. Just apply logic and your emotions will leave you alone.
Get Yourself Organized
If you want to prosper as a forex trader you absolutely have to get yourself organized. You need to develop a trading plan and apply religiously. Treat t forex trading as a business instead of a Las Vegas Casino. There should be a method to every trade that you place on the market. Even more important, stay calm. Don’t get carried away with your emotions. Every trade must be thought out before you make your entry. Once you accomplish that, the demons will stay out of your way.
That’s a wrap for ”How To Cultivate The Right Mindset For Forex Trading .” You absolutely need a solid mindset to succeed as a forex trader. You cannot approach forex trading with a gambler’s mentality or else you’ll lose heavily. Forex trading is a business just like any other enterprise. You must be calculating in all your trades. You must be purposeful with every trade rather letting the chips fall where they may. It could be the difference between prosperity and poverty.
Til next time take care
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