This article looks at the psychological aspects of trading in the foreign exchange market.
The introduction of online retail trading solutions had increased the idea of being able to make money on the foreign exchange market. This has attracted many novice traders who believe it is an easy way to make money. This is especially true if they have had success using a demo account.
Practise vs. Real-Life
The problems arise when these traders move on to a live trading account and they start using their own money, not virtual currency. Suddenly the activity is no longer fun as the stresses of betting your own money take over. This is when these traders start to experience all sorts of emotions about the trading market.
Emotions can Rule the Foreign Exchange Market Trades
Emotions are known to be one of the reasons why so many traders fail in this market. There are many mind traps that can hold traders back.
Greed often prompts a trader to hang on to a position much longer than required. This is a simple process of greed as the trader hopes that the price will increase, even whilst watching it fall. To try and overcome this emotion, you should sit back and be objective about the reason for your position. If one of your trades is experiencing a downfall, you should question if the initial reason for entering the trade still exists. If it does not, you may have to consider either exiting that position or reducing it.
Fear can paralyse anyone. This often happens to traders and pushes them to exit a position before they are meant to. Traders who are overly worried about the potential losses they may incur, often leave their positions too early as their fear of loss takes over. This often prevents these traders from making the profits they should be making.
Many traders undertake in-depth analysis before they enter trades. This can sometimes become a problem because the trader often reads too much into the analysis and does not actually enter the trade when they are supposed to. They spend too much time trying to find a perfect analysis to the current situation.
All traders have at least one trading psychological problem. The best way to overcome these is to recognise it, understand it and neutralise it. This should come as a standard part of your forex training. Before you enter this trading market, you should know yourself and how you normally react to certain situations. This will allow you to determine the best trading plan and strategy for your personality type. This does not mean that by finding the best strategy for your personality, you will not experience the emotions involved with trading. There will be times when you will feel fear as you have something to lose. You should learn how to overcome it without becoming illogical.
Traders are human and humans have emotions. There are several emotions that may rule you as a trader. The most important aspect is to recognise the emotions that are hindering your trading habits and try to overcome them.
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