Traders must deal with trading psychology. Every new Forex trader without exception will suffer a series of losses at some point, and will start to doubt the system or strategy that they’re using. The common response to this is to study more, or add more indicators and parameters to their system. The core belief is that the primary factor in the financial outcome of your trading is your knowledge and technical ability.
The truth is that the primary factor in your long-term trading success (or lack of) is actually your Forex trading psychology. This can be a difficult point for people to accept, because logic seems to dictate that all you have to do is find a winning strategy and then follow it like a robot in order to succeed. Anybody who’s been trading for any amount of time will know full well that it doesn’t quite work like that in practice.
If we accept the importance of our trading mindset, then how can we go about developing winning Forex trading psychology?
Accept the Truth
The first steps are to change your mindset and learn to be honest with yourself. The temptation for new traders is to focus on the wins and ignore the losses, or to find ways to blame the market, bad luck, or their broker for their losing trades. The sooner you begin to accept that your trading results are of your own doing and under your control, the sooner you can start to overcome the psychological mistakes that hold many traders back.
Forex trading psychology is all about developing a mindset where you enter, manage and exit trades based on sound logic rather than emotion, and honestly is the first trait required.
Analyze the Mistakes
Once you’ve learned to accept the responsibility for your trading mistakes, the next step is to analyse the common mistakes you’re making. Do you have a fear that holds you back from taking trades after you’ve suffered a loss or two? Do you get angry with the market and take “revenge trades” that aren’t a part of your trading plan? Do you move your stop losses further away than they should be to try and avoid losses?
Whatever it is you can guarantee that thousands of traders have suffered the same problem in the past, and many have successfully overcome them. Once you’ve identified the key mistakes you’re consistently making, you’ve made the first big step towards overcoming them.
Take Action to Overcome Those Mistakes
Clearly this is the most challenging step; but once you manage to overcome your short-comings in this area, you really will be in a position to make massive and more importantly consistent long-term profit from the Forex markets.
One of the most effective ways to beat these problems and to develop the Forex trading psychology that you need is through goal setting. Set yourself ambitious but realistic goals within your trading that directly relate to your psychological approach.
For example, if your problem is closing trades too early, why not set a goal that over your next 3 trades you have to leave the trade to run it’s full course no matter what? If you achieve that, your next goal can be to take 6 or even 10 trades in the same way.
It sounds very simplistic but it’s amazing how much your mindset can be re-programmed if you’re willing to work on it, and you can develop a winning Forex trading psychology in no time. With discipline and a good trading system, you’ll be unstoppable.