The Psychology of Forex Trading


Emotions should you watch for in yourself while trading:

Emotions should you watch for in yourself while trading:

1.Greed:

Traders are greedy when they don’t take profits because they think a trade is going to go forever in their favor. Another thing that greedy traders do is add to a position simply because the market has moved in their favor, you can add to your trades if you do so for logical price action-based reasons, but doing so only because the market has moved in your favor a little bit, is usually an action born out of greed. Obviously, risking too much on a trade from the very start is a greedy thing to do too. The point here is that you need to be very careful of greed, because it can sneak up on you and quickly destroy your trading account.

2. Fear:

Traders become fearful of entering the market usually when they are new to trading and have not yet mastered an effective trading strategy.Fear can also arise in a trader after they hit a series of losing trades or after suffering a loss larger than what they are emotionally capable of absorbing.Fear can be a very limiting emotion to a trader because it can make them miss out on good trading opportunities.

3. Revenge:

Traders experience a feeling of wanting “revenge” on the market when they suffer a losing trade that they were “sure” would work out. if you have risked too much money on a trade (starting to see a theme here?), and you end up losing that money, there’s a good chance you are going to want to try and jump back in the market to make that money back….which usually just leads to another loss (and sometimes an even larger one) since you are just trading emotionally again.

4. Euphoria:

While feeling euphoric is usually a good thing, it can actually do a lot of damage to a trader’s account after he or she hits a big winner or a large string of winners. Traders can become overly-confident after winning a few trades in the market, for this reason most traders experience their biggest losing period’s right after they hit a bunch of winners in the market.

How to obtain and maintain an effective trading mindset

It’s not necessarily difficult to achieve, but if you want to develop an effective trading mindset, you have to accept certain facts about trading and then trade the market with these facts in mind. Always follow 4 golden rules:

  1. Build and follow your trading strategies.

  2. Do proper Risk analysis and Risk Management.

  3. Don't Overtrade.

  4. Be Realistic.

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Trading is an art of making handsome amount.

Enjoy Trading!

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