The Psychology Of a Forex Trader

Forex tips

Forex trading requires emotional detachment. Losses are inevitable, and should not be allowed to become the cause of emotional stress or physical illness.

Forex traders are also cautioned against becoming overconfident. A profitable trade, especially for a novice trader, may lead him or her to engage in more trades than can be reasonably tracked in a trading session.

Moderation, experience, and intuition help a trader know when to take calculated risks to succeed in trading. A successful forex trader has control over his or her emotions. Being overly excited about a win or depressed over a loss only impedes a trader’s ability to think clearly.

The first psychological mistake that most new and semi experienced traders commit is to follow the trend blindly without using common sense and logic. Things like an economical data published, some kind of breaking news aired on radio or TV, 5 minutes chart reflecting a breakout and many such other things will trigger most forex traders to rush and be first to enter the market. It is often said that trend is trader’s best friend. But as a forex trader you should remember that you have to follow the trend to trade, not be the first to enter market after any data or news published.

For example if as a trader you enter the trade based on first report released. Not waiting for other similar reports to come out. It often happens that after a few economic data are being released one following the other. What most forex traders do is they do not wait for same figures to be released by more than a few agencies? The second and following figure released might just reverse the forex movement. This is something that doesn’t strike them in the frenzy.

Another example of it is that there are also traders who trade by keeping a close watch on the chart, and will enter market when the charts show extreme movement. These traders are again in a state of frenzy and do not take time to understand what the forces are for such a movement. And when they realize this for most traders is a gone game and too late to realize that it was a false alarm because they are already in the losing position.

If you want to succeed in the currency trading market don’t be over-eager to enter the market, and learn to deal with worrying too late to make more profit. Instead learn to take time to analyze what’s the impact of the economic figure released.

This is what following the trend is about in the true sense of the word, which will be moving on the same side till the markets close.

Then comes the 2nd reason which is greed. Forex trader is generally seen to be driven by greed of making high and consistent profits with each trade. If this was not true the currency market would not have been the largest market in the world. In forex trading for an averagely sensible and experienced trader, it’s not really difficult to profitable every month. But what makes most forex traders lose at the end is their greediness. Majority of these guys are on their way to earning decent returns on their investments, but again greed takes over and most forex traders start gambling at some stage as they are not satisfied with a reasonable profit.

What they start aiming at is at least a double or triple. This results in heavy losses for the traders. And believe me I have seen in my experience as a coach and trader that people don’t learn from other people’s mistakes. Traders instantly notice that someone has become millionaire trading in forex market and want to jump on to the band wagon immediately. But they are never so quick on the uptake when it comes to finding what it takes to be a winner, learning those skills and learning from mistakes of other traders. Had they been a more sincere and patient lot, success would come much easier.

In today’s economic environment and condition most currency pairs fluctuate between 100-300 pips every day. It’s not difficult to gain some profit daily. I have observed that after covering the daily profit, forex traders want to make another attempt and earn more on the same day. This is greed and if allowed to grow will finally lead to making losses at the end of the day.

To deal with greediness, the forex trader should stop and shut down the computer once the target/stop is reached for the day. Never look back, don’t continue watching the forex quotes or chart after you have reached your goals because the movements will trigger the greed in you and you will not be able to stop yourself from taking that one more chance. Just call it a day after reaching your day’s profit goal and proceed to spend rest of the day by doing things you like.

The third thing is to learn to stop loss, cut the position, and accept that you have done a mistake. Unless you accept your mistake and the reasons behind it, you will not be able to deal with it and unless that happens, the profits will not roll in. As a trader you have to always keep in mind that there’s always going to be new opportunity as long as your margin is not tied with any open position.

If you keep your mind in check, you’ll become a very successful trader. A lot to do with trading forex is physiological.