Forex Trading Psychology

Forex trading, like any other human activity, has its own set of psychology concepts. In fact, your failure to take into account the ways that trading psychology affects your judgment in buying and selling currencies can be the end of your career as a forex trader. Keep in mind that your state of mind affects your actions, which may or may not work in your favour in the long run.

You must beware of two destructive emotions when trading in the forex market or any securities market, for that matter. These emotions are fear and greed, both of which will distort your judgment although each one works in a different manner.

On one hand, fear is induced by a perceived threat that may or may not be present in reality. As applied in forex trading, it holds back traders from making the trade even when the opportunity is clearly visible as well as to prematurely close the trade without waiting for it to be profitable. Your fear can come from a wide variety of causes, including fear of suffering from a financial loss or fear of not following the big guns lead.

On the other hand, greed is defined as setting inappropriate expectations and as the inordinate desire to possess things deemed valuable. Forex traders often fall prey to greed simply because everybody wants to have the larger, if not the largest, share of the profit pie. As a result, greedy traders will make too-risky decisions in an attempt to squeeze every last cent from the transaction.

These two emotions are the worst enemies in forex trading and, by extension, forex traders can be their own worst enemies. Well, why jeopardise your profit-making ventures in the forex market with your own fears and greediness? Remember the following tips on overcoming these negative emotions and harnessing them for your own good.

First, you must design and implement an effective and efficient trading plan. In this plan, you will plot your entry and exit points by setting limits on your losses and setting ceilings on your profits, among other things. Most importantly, stick to your plan instead of being swayed by your emotions every which way.

Second, always be on your toes whenever you are on the forex trading floor. You cannot afford to let your mind wander away from your most important goal at the moment watch for the perfect time to buy or sell. Be present, both in mind and body and the profits will come later.

Third, do the work. You must study how the forex market operates through books, journals and newspapers, as well as online sites, podcasts and television shows. You will be required to make the decisions and it will be to your benefit when you can make informed decisions.

In the end, the psychology of forex trading boils down to how well you can discipline yourself. The reward for discipline comes soon afterwards.

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