Having experience in market analysis or having extensive Forex knowledge is not the only factor that determines the success of a Forex trader. You may know thousands of successful strategies and make good use of all existing indicators, but unless you learn something very important, it will be difficult for you to make money in Forex. It is often overlooked or completely ignored, but it is something that every Forex trader should excel at. This is the ability to manage your emotions and part of the psychology of trading in the Forex market.
This is Victor Sperandeo, founding partner of EAM Partners, LP, commonly known as “Trader Vic”.
“The key to success in trading is emotional discipline. If intelligence were the key, there would be a lot more people making money trading.”
What he says is absolutely true and is an important concept in Forex trading psychology. There are many people who are extremely smart but still lose in Forex. Because emotions such as greed, fear, and intense euphoria after a profitable trade cloud their ability to make decisions.
When you don’t know how to deal with emotions, it can ruin your trading day and damage your trading account up to the point of losing a huge amount of money. The reason is simple; We make hasty and irrational decisions when we are angry, depressed, or greedy.
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How do experienced traders deal with emotions?
The psychology of Forex trading in experienced traders is quite good and they handle their emotions well. They know exactly when to trade the market and when not to trade. Below are ways they deal with their emotions.
1) They don’t trade because of greed
In this way, they avoid many things that will cause a stressful emotional reaction. And if they are really afraid or not in the mood to trade, they simply avoid making trades. It’s better than opening a trade and losing money, right?
2) They are aware of the uncertainty in the Forex market.
Experienced traders are aware of the uncertainty in the Forex market, which is not the same as uncertainty. It’s just a fact in Forex. No matter how good your trading decision is, the market can unexpectedly go against your predictions at any time. If you clearly understand this when making a trade, you will not be shocked when the trade turns out to be unprofitable. All you have to do is be fully prepared to face the loss. There is a saying: Hope for the best but prepare for the worst. You must be mentally prepared to accept the loss you are facing. This will certainly reduce the impact of negative emotions. Being aware of uncertainty is another important thing to understand when it comes to the psychology of Forex trading. Tip #4 for Dealing with Market Uncertainty.
3) They never expect quick profits.
It is also associated with greed. What do beginner Forex traders do when they want to make quick money? They simply place trades with huge trading volume and lot size. But when you choose a huge lot size, you also risk a huge amount of money. While Forex traders who do this only consider one possibility and are blinded by how much they can earn if the trade goes well, they completely forget or ignore the other possibility: if the trade doesn’t go as expected, they will lose a huge amount of money. Money. In addition, in a few more transactions, they lose all their capital. Experienced traders never do this! They always follow good risk management.
To sum it up, understanding three important things about the psychology of Forex trading can go a long way: take breaks when you get too emotional, always be aware of the uncertainty in the Forex market, and practice prudent risk management.
Prevention is better than cure
Here’s one more thing to keep in mind. Avoid every possible way that emotions can ruin your performance. We are going to list some tips that are going to help.
- Have a very good trading plan. Trading with good planning reduces risk and also prevents any emotion from affecting your performance. You need to develop your own individual trading plan and develop a solid trading discipline.
- Once you have placed a trade, don’t look at the movement of the currency. Just place a trade and go. If you have the habit of watching the trade, you will succumb to many temptations. You can move your stop loss, hoping the market will reverse. You can move the take profit level, hoping that the trend will continue in the same direction. If you keep moving these values around, there’s no point in setting them in the first place. It also fuels your emotions.
- Always use proven strategies. When you use a strategy that has been sufficiently tested in the past, it will be easier for you to avoid losses.
- After you have received three consecutive winning or losing trades, better take a break. If you get three consecutive profitable trades, your fourth trade may be entirely motivated by overconfidence. If you get three consecutive losses, your fourth trade will be driven by a dire need to get your lost money back.
Managing your emotions is the key to long-term success
If you didn’t know how your emotions can ruin your trading life, then you have learned a very valuable lesson from this post. If you have ever wondered why 90% of Forex traders lose money and stop trading forever, now you have the answer. An inability to deal with emotions and a misunderstanding of the psychology of Forex trading are good reasons for this. For any other reason, you can think of springs for that one reason.
For example, one thing that causes many traders to quit trading is poor risk management; they take more risks than they should. But why do they practice poor risk management at all? A definite one-word answer to this question ‘greed’, which is an emotion. Why would someone jump in and start trading live without having enough experience trading on a demo account? Same reason! They want to make money fast. If you have learned the art of managing your emotions, you can certainly call yourself an experienced and professional trader.
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