The laws of trading psychology affect all traders, including those in the Forex market. As you trade, your emotional and psychophysical state may affect your results.
Initially, it might be enough to have only technical and analytical skills to perform decently. However, long-term success relies on your self-control and discipline. These are the key factors that will help you achieve success.
Self-controlled traders are able to trade in their pre-defined rules without deviation. Their emotions do not affect their trading plans. They are "in the zone", a state in which they are the most productive and are able to make the right decisions.
Read on to learn about the emotions you may face and how you can overcome them.
How Emotions Impact a Forex Trader’s Performance
Before you start trading, it is necessary to understand how emotions can affect your performance. Any strategic preparation you do is meaningless if you have not prepared yourself mentally or emotionally.
Here are some emotions you may encounter that have a negative effect on the result of your trading:
Fear
There are many emotional responses associated with fear. It could be your fear of failure, or losing potential profit. These fears could move you to make rash decisions such as opening opposing positions or closing the current deal. While these fears are valid, any decisions not made on the basis of any analysis will lead to losses.
Greed
On the other hand, excessive self-confidence and a sense of superiority could be your downfall. Most often, after a major successful transaction, you might begin to behave irrationally, deviating from your chosen strategy. This could lead to you entering the market with unconfirmed signals, leading to losses that exceed any previous success.
Revenge Trading
This is where you start to compensate for a bad deal by making other deals to recoup. If it seems like you are trading emotionally, stop and take a breather. Continue trading again when you have established a trading plan.
In such cases, it is important to keep a trader's diary. This will help you to ensure your actions align with your plan and keep your emotions in check.
Managing Your Emotions
Entering the market based on your emotions is dangerous. It may lead you to make thoughtless decisions and elementary mistakes. At all times, it is essential to establish the right mindset and get “into the zone”.
Understanding the psychology of trading is crucial for both beginners and professionals. Studying this will allow you to subsequently master the difficult skill of trading, from preserving financial health to increasing your capital. Here are 5 basic tips on how to manage trading psychology:
1. Take your time.
According to the 2019 Triennial Central Bank Survey, Forex trading reached $6.6 trillion a day. Navigating the fast-paced Forex market can be intimidating. But there is no rush. The Forex market is the world’s largest and most liquid financial market, so it will not be going anywhere.
When you trade, you are in it for the long run. A sudden success could be an outlier event and the trader’s high is only temporary. So, remember to take it slow.
2. Stick to your trading plan.
Your trading plan is the bread and butter for success. It is the roadmap for how you trade and the strategic decisions to be made based on variables such as time and risk. Keep the long-term successes in mind and do not be quick to ditch your trading plan.
Once again, take the time to fully access your results. If you experience repeating losses, have a look at your strategy to see if improvements can be made before you continue to trade.
3. Improve your skills gradually.
Like any successful trader, constant learning is a fundamental aspect of trading. Spend some time equipping yourself with knowledge on the Forex market. You could start by following experienced leaders at Share4you, copying their trades and benefitting from their successes.
However, working on your soft skills is just as important as educating yourself and gaining knowledge. Having control over your emotions is essential for successful trading. Start by training skills such as patience and self-control. These take practice, and it is never too late to start.
4. Stay calm.
A multitude of emotions after making a successful deal is inevitable: pride, excitement, euphoria. This sudden rush might tempt you to deviate from your trading plan. Similar to revenge trading, euphoria trading will make you impulsively enter the market, being careless as you do so.
When you feel yourself getting too worked up, take a deep breath or try meditation. You need to regain your composure and get back "into the zone" before you continue trading.
5. Avoid trading when tired, upset or agitated.
Trying to navigate the highly volatile Forex market can be frustrating and tiresome. But remember, anger, disappointment and annoyance are never ideal for trading. In fact, it could lead to rash decision-making that will leave you with many bad deals and losses.
When things do not go your way, the negativity may eventually creep up on you. If you start feeling overwhelmed and are suffering from trading fatigue, take a break. Do not succumb to the pitfall that is revenge trading.
Forex Trading involves significant risk to your invested capital. Please read and ensure you fully understand our Risk Disclosure.
