The Psychology of Forex Trading
The Psychology of Trading can be a tool that can help a trader control and predict their emotions and decide based on facts. The lack of this psychology can be a hindrance for the trader's success since the movements of the market are pretty unpredictable.
The right psychological outlook can help traders face the issues and make sound decisions in the end. There should be a balance among all the different aspects of becoming a successful trader.
When a trader loses a trade, the first thing that can come to their mind, would probably be that he must be using the wrong system. The trader might even regret taking the trade however sometimes the nature of the mistakes done can come from the inner self just like the mistakes we make in life. There is just about five percent of consistent top traders whose ultimate aim is to achieve constant profits. These top traders learn from their mistakes. They treat their mistakes as an experience they could learn from. They realize that they could have another chance of making it better and below are some of the helpful ways of achieving the right trading psychology.
•Make stop-loss orders and honor them for your money's protection - When there is an order for the stop loss the trader should do it immediately, he should not have doubts. The trader should prevent holding onto his position which is already losing because he hopes that something good will still happen. On a losing point or position the stocks will continue to fall until a positive movement happens to stop the fall. The trader may be wiped out just because he is still waiting for the positive movement which could be like a magic.
A trader should get released from a negative trade and apply the money to do another trade transaction. A trader should cut the losses quickly and he should let more profits from the trade run. Most of the traders abandon the plan they had before and get the profits even before the target has been reached since they somehow feel very comfortable just being on a position they think is most profitable already. These traders will end up sitting on a losing position; they usually allow the market to act against their trade for many points while hoping that this market goes back to their favor.
These traders also quickly remove the orders to stop believing that the market's movement will constantly be beneficial for them. Stops exists to be hit as well as to halt the trader from losing the money he cannot afford to lose. It is a wrong belief that each trade will gain the trader profits it already good if he can get three trades that is earning well out of six. The question is how you can gain money with just the half of your trade transactions winning, the answer is that the trader should allow the profits of the winning trades to continuously run and keep the losses at a minimum.
•Never over trade - Over trading is a usual mistake of the traders. They put a high leverage on the account they own which they do through trading bigger sizes than what their account can trade.
•Trade with the trend only - The time scale a trader uses is not even important. The difference lies in the stop-loss or the target size. This means that a trend with a long term needs big stops and bigger prospective targets. The common mistake of the trader is to follow up the trends of large scales with shorter stop-loss orders which can be more comfortable on their part.
•Let the profits continuously run - A natural reaction for a trader is to take the profits at an early stage because of their fear that the unfortunate could happen and they could lose the profits. The best thing to do is to make use of trailing stops for protection.
The Psychology of trading is a subject not often discussed and dealt with. Traders usually keep themselves busy in finding a system that works for them. Finding the right system is indeed important however understanding the psychological aspects and barriers should not be neglected.
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