Forex trading is as much a “head” game as it is a “numbers” game. Trading psychology is just as important as a solid grasp of trading practice because things like your temperament, fears, and confidence can turn rational decisions into emotional ones and maybe mess up your trades. So, let’s look at a little psychology and see how it can turn you into a better trader.
There’s probably nothing more important than the mental state you sit down to trade with every day. A bad night or a stressful morning can affect your mental balance, which is the most important tool in your trading kit, so don’t let emotional swings affect your ability to execute.
Stick to the plan
Your trading plan is something that you create from study, learning, and poring over charts. But even though you come to the game technically prepared, you can derail yourself by not being emotionally prepared. When you’re new (or maybe when you’re experienced but not feeling great about life that day) successes can feel wonderful, almost dizzying. They can lift you and make you feel invincible. But you’re not. Stick to the plan, don’t become overconfident. Don’t be the guy who loses his house on the roulette wheel after one lucky win. Stick to the cold, boring, statistically driven and rational plan. And when you do lose a trade, as you inevitably will, don’t take that as a sign that all is lost. It isn’t. It was only that trade that went sour, not your whole system, and not your whole life. There isn’t any need to change your setup yet. Trading psychology shows us that long-term growth requires a long-term commitment. Instant gratification is fleeting, however nice it might feel. Focus on the big picture and stick to the plan!
Take a widescreen view
Don’t focus on individual trades. It’s important to pull back and look at the overall picture. Look at your equity curve before you start getting into the details of single trades because you’re more interested in understanding whether the system is working.
The internet gives us unlimited opportunities to be distracted and social media was designed to be addictive. It’s tempting to follow the gurus we find there, but doing so means we never see a plan through to the end. It’s best just to switch them off.
Losing $10 does not feel exactly as bad as finding $50 feels good. It feels much worse. We hate to lose things,
and money especially. You might think you don’t mind losing money and you might say that you always place your stop, but when you place your stop far away from your entry price and don’t see the trade progressing as you thought it would, you move your stop up. And of course, the stop triggers just before the market moves in the direction you thought it would start with, which means you were right, to begin with, your analysis was correct, but fear of losing money made you change your approach. You must be truly comfortable with accepting the risk of losing to be truly successful.
Think like a winner
Confidence is the key to most things in life. Every time you take a trade, you need to seriously believe in yourself, be proud of your successes and treat every loss as a learning opportunity, an essential step on your journey to success.
Even though you can do your due diligence to make sure you’re trading correctly, it’s important to remember that market volatility can flip the script on your trades, which is why it’s always important to practice good risk management. Do not stress if trends are not moving the way you wanted. Keep in mind that high profits trades involving some risk.