The psychology of forex trading has much to do with a trader’s instinctual reaction to the market. In a changeable trading environment, uncontrollable emotions are possible, especially during market movement. Most times, people fail in forex trading because of emotions and trading anxiety that can result in uncalculated trading. The consequence normally is poor returns! To trade efficiently, you have to take charge of your emotions, eliminate any trading anxiety, be confident and ensure you avoid silly trading mistakes that can cost you money.
The first tip to managing your emotions is developing the discipline to overcome your feelings. Some traders engage in more business than their resources can support. The forex market is not sympathetic to traders who engage in overtrading, especially those that are starting out in the market and have zero experience. To discipline your emotions, start by writing down your trading rules and developing a trading plan. As opposed to having them in your head, this will put you in check such that when emotions kick in the course of trading, you will not deviate from the rules.
Many novice traders ride an emotional rollercoaster, feeling on top of the world after a win, but down in the dumps after a loss. In contrast, most professional traders stay calm and relaxed even after a series of losses. They don’t let the natural ups and downs of trading affect them emotionally. As a winning trader you will want to do the same – stay composed and as unemotional as possible. We know it can get tough. Even the seasoned trader will lose composure and let emotion take charge. It is a natural thing – many novice traders would start doubting their methods and decisions.
Understand that you will win some and you will lose some. At times you will be profitable in your trading, and at other times you won’t be. Losing is as part of the game as winning. Coming to terms with this simple fact will definitely help. Trade with enough money to allow for a buffer when those losing trades come. Also, don’t risk money you can’t afford to lose. Be ready to handle the losses, because they will come! That’s just how the market works.
Most forex traders see forex as more like shopping rather than trading. By shopping, I mean spending your dollar without planning on stuff when the sudden feeling to do so arises. So, instead of trading based on your instinct or feeling, it is better you have a plan and stick with it. Your plan must take into account stop loss and profit target. A plan makes it easy for you to get out on time when the market moves against you, and to amass profit when it moves in your direction. Having a plan that hints you when and when not to trade is the best way to deal with harmful emotions that plague forex traders. This technique works because you want to make a personal judgment for your trade.