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The Psychology of Forex Trading As A Forex Trader

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The Forex market has changed through the years, growing in volume and expanding across multiple time zones.

Brokerage houses have changed, too, going online with sophisticated software and powerful servers.

Economic indicators and technical analysis have become more sophisticated, too, until the Forex market of today bears little resemblance to what it used to be.

But there’s one thing that hasn’t changed: most traders lose.

Despite all the advances in the Forex marketplace, the ratio of winners to losers remains low. Experts agree that the most hopeful number that can be advanced is a measly 10%, which means that 90% of all traders on any particular day will lose.

Experts also agree that the reason most traders lose is because they allow their emotions to cloud their judgment.

Most people trade on hope and fear, rather than facts. Rather than basing their trades on what the charts and the indicators actually say, these people trade on what they want them to say. They hang onto a losing trade and follow the graph down, hoping the currency pair will turn around. Or they exit a trade too soon, fearing the trend won’t last, and are satisfied with pennies that even the best Forex money management cannot balance against their losses.

Other people lose through greed, by trying to pick the highs and lows too nicely to maximize their profits to the penny. Rather than waiting to place a trade when the indicators confirm the market’s movement, they jump in too soon and are disappointed when the anticipated break-out never occurs.

Remember, there is no magic software or fool-proof trading scheme. If you cannot control your emotions, then you cannot become a winner despite yourself. But there are things you can do to improve your chances of being one of the winners, and the most powerful is to follow these rules of Forex trading:

Prepare a trading plan, using good Forex money management skills and the trading strategy of your choice—then trade your plan. Don’t alter your plan or fudge your criteria if you don’t see a good trade for a few days; wait for the market to fulfill your requirements before risking your money. Remember the law of averages: sooner or later, the market will come around.

Use stops, and trailing stops when possible, to control losses and protect your profits. Remember to set your stops far enough away from the entry price so that you aren’t closed out by normal market jitters.

Paper trade with a demo account until you are efficient and feel comfortable in the market.

When you move on and start trading with real money, it feels different than paper trading! But this is no time to change your plan. To minimize the effects of emotion, set a small, realistic initial goal and trade until you achieve your goal more often than not. Use small sums in micro or mini accounts. Only when you are comfortable risking your cash and sometimes losing it should you attempt to trade with larger sums of money.

Study your trading record and try to figure out what went wrong when you lost. To put it simply, learn from your mistakes. That alone will put you ahead of the crowd!

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Comments

  1. Alison Adams says:

    I think that besides an effective software to assist you in your trading decisions, you also need the know-how that you can either built through experience or by careful research and analysis.

  2. Aaron Grinch says:

    Forex Trading is a trade not driven by facts but trade driven by rumors. Studying graphs and tendencies is quite useful, but you need to have a sixth sense, but we all know we cannot count entirely on it. Software is a great way to make some predictions. Choose it carefully.

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