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Psychology’s Role in Forex Trading
Written by: PaxForex analytics dept - Monday, 17 April 2017 0 comments
Forex trading psychology has been studied extensively by many researchers, typically to determine what type of trading mindset and personality type are most successful in terms of generating consistent trading profits. Several of these researchers have written important books on the subject that traders can read to gain insights into their own activities and whether or not they are psychologically suitable to become a successful trader.
As with any form of speculative activity, the importance of psychology in forex trading simply cannot be overestimated. Humans are emotional beings, and they have well-defined psychological traits that often accumulate into a number of unique personality types. Furthermore, when traders group together en mass, their overall psychological behavior moves markets and creates the very chart patterns that excite technical analysts. The fundamental psychological factors of a trader’s personality often come to the foreground when forex trading activities start to generate significant profits and losses, since many people experience strong feelings when making and losing money.
Traders often violate their trading decisions due to the impact of trading psychology. This is trading psychology, which resists traders to execute their own analysis and trading decisions. As a human being, you can not eliminate the effect of trading psychology completely but to
be a successful trader you must keep yourself away from some major psychological problems such as fear, greed, euphoria, overconfidence, revenge etc.
Forex traders have to not only compete with other traders in the forex market but also with themselves. Oftentimes as a forex trader, you will be your own worst enemy. We, as humans, are naturally emotional. Our egos want to be validated—we want to prove to ourselves that we know what we are doing and we are capable of taking care of ourselves. We also have a natural instinct to survive. All of these emotions and instincts can combine to provide us with trading successes every now and then. Most of the time, however, our emotions get the best of us and lead us to trading losses unless we learn to control them.
The capacity to control one’s emotions is one of the most difficult aspects of forex trading. It can make the difference between a successful and losing trader. Even with a great knowledge and understanding of the market, you may find yourself continuously losing in your trades. Many forex traders believe it would be ideal if you could completely divorce yourself from your emotions. Unfortunately, that is next to impossible, and some of your emotions may actually help improve your trading success. The best thing you can do for yourself is learn to understand yourself as a trader. Identify your strengths and your weakness and pick a trading style that is right for you.