Trading psychology is an important discipline that needs to be studied and understood by anyone who aims toward long-term success in the financial markets. Self-mastery and emotional control are key to achieving consistency when trading. There are many characteristics and skills required in order to be successful in forex trading. The ability to understand the inner workings of the forex market, its fundamentals and the ability to determine the direction of the trend are a few of the key traits needed, but not one of these is as important as the ability to contain emotions and maintain discipline.
The emotions and mental state that dictate success or failure in trading securities. Trading psychology refers to the aspects of an individual’s mental makeup that help determine whether he or she will be successful in buying and selling securities for a profit. Trading psychology is as important as other attributes such as knowledge, experience and skill in determining trading success. Discipline and risk-taking are two of the most critical aspects of trading psychology, since a trader’s implementation of these aspects is critical to the success of his or her trading plan.
When performing either fundamental or technical analysis, you should in theory be able to predict which way currency prices will go, especially with all the market data you have at hand. If this were the case, all traders would act the same, however each trader has their own opinion. Each and every forex trader is unique, they all have a different explanation as to why the market is acting in a certain way, and how they think it will act next, so this is where market psychology comes into play.
Understanding psychology’s role in the market is not hard, but practicing it can be, and it’s what often makes or breaks a trader’s success. You can be mentally prepared, and have your trading plan ready. Then you step in front of your computer, and suddenly realize that the market is moving swiftly, and your herd instinct will kick in. You have to fight the urge to do what other traders are doing, and abandon your trading plan. This happens day after day and time after time to your average trader, which is one reason that most individuals who try their hand in the market never learn how to trade profitably.
For success in forex trading, you need to understand your own trading psychology. What pitfalls do you make? What losses occurred due to panic, greed, euphoria, or fear? Were there mistakes in your trading plan? Did you have a trading plan? Before you make another trade, assess who you are and your patterns of behavior. If you need to seek a professional to help you figure out your patterns of behavior and help you decide who you are. Once you know yourself better, you can create a trading plan that helps you reduce your emotions.