The Psychological Factors You Need to Consider if You Want to Trade Forex

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Despite the growing number of computer-based algo traders, market participants are still mostly humans with one thing in common – emotional trading. Emotions are arguably the number one factor that lies in between you and your trading success. As Phillip Konchar Head Tutor at My Trading Skills, an online financial trading course provider suggests, “Whether you’ve chosen the wrong trading style that doesn’t suit your psychological traits or let greed and fear to interfere with your trading decisions, controlling your emotions is something you need to start practising as soon as today.”

Choose a Trading Style That Suits You

Not all trading styles suit all kind of traders. If you enjoy fast-paced trading and don’t mind sitting in front of your trading screen all day long, then scalping might be the perfect trading style for you. It involves opening multiple positions during the day and holding them only for a short period of time. If you feel this might be too stressful for you, then consider day trading. You’ll still open enough trades during a trading week to keep you busy but will also have enough time for other activities once a trade is opened. As a rule of thumb, you’ll be flagged as a day trader if you open at least three trades a day for five consecutive days.

On the other side, if patience better describes your personality, then give swing trading a try. If you don’t pick the right trading style that suits your personality, then your trading performance will ultimately suffer.

Trading is All About Discipline and Patience

Whichever trading style you pick, discipline is an extremely important psychological trait of any successful Forex trader. Having discipline prevents trading out of the gut and avoids the interference of emotions in trading decisions. This is the main reason why trading robots exist – they trade based on algorithms, have discipline and don’t use emotions in their trading.

Start practising discipline early in your trading career. The best way to do so is to have a written trading plan with strict and precise rules. You buy only when all the rules of your trading strategy show to buy, and you sell only when all rules show to sell. Don’t fall into the trap of over trading – patiently wait for all conditions to align before moving your trigger and over time following your trading plan will become a habit.

The Common Mistakes of Beginner Traders – Greed and Fear

Closely related to the deteriorating effect of not having discipline and patience is trading based on greed and fear. This is a common mistake of beginner traders, as they will often feel greed when prices move fast up or down, only to find themselves entering the market in the direction of the underlying move exactly at the point when experienced traders lock in their profits. Here we touch on the importance of discipline again – strictly follow your trading strategy and don’t chase the market for trading opportunities. Trade setups form over and over again and the market doesn’t owe you anything.

Similar to greed, fear is also a common emotion among beginner traders who let their losses run and close their profits too early, in fear to take a hit from a loss or to miss out on the small profits of a profitable position.

A popular saying in the trading community goes: Cut your losses and let your profits run! Once you start to have confidence in your trading discipline and trading strategy, you won’t look to close a trade too early. Simply believe in your analysis – cut your losses short if a trade setup isn’t promising anymore, and let your profitable trades perform without closing them too early.

Don’t Let a Losing Trade Ruin Your Day

Let’s face it, losing trades are an integral part of trading. Even the best traders have losers from time to time, and according to a 1998 study by University of Berkeley among all day traders, nearly 40% day trade for only one month. Within three years, only 13% continue to day trade. After five years, only 7% remain. If losses have a large impact on your mood, then please read through this article again – never let emotions interfere with your trading. Losing trades simply exist, and our goal as Forex traders is to offset the losses of losing trades with the profits of successful trades. Sounds familiar? Cut your losses and let your profits run.

About Mohit Tater

Mohit is the co-founder and editor of Entrepreneurship Life, a place where entrepreneurs, start-ups, and business owners can find wide ranging information, advice, resources, and tools for starting, running, and growing their businesses.

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