Psychology Forex Trading – No More Mind Games!
Forex trading has an element of mind games and profiting largely relies on your ability to handle the pressure psychologically. Your success depends on understanding your own mind, ability to control the emotions and realization that one of the factors that moves the market is the psychology.
Forex market has no physical location and it operates through an electronic network of banks, corporations and individuals like you. In other words, the market goes up and down based on decisions made by people.
Keeping an eye only on trend is not enough. You have to understand what moves you as well, and not focus only on the mass psychology that influences the whole pool of players. You have to analyze what makes you tick and recognize when your own mind starts playing games and therefore influences the decisions you make.
Whether it is winning or losing a considerable chunk of money – emotions and adrenalin are involved. Even if you group up traders who look at the same charts, use the same indicators, have access to the same data, the decisions will still differ. Why is that?!
The difference is in interpretation based on your emotions. The market doesn’t go against you, the numbers do not cheat. It is your own mind that plays games.
Your decisions are influenced by fear and hope. Sometimes there is no trend, but you want to make couple of more hundreds today and you force yourself into believing that there is a real trend, while in fact there isn’t!
To make things worse, your pride monitors your every move! Being right makes you feel like a professional trader. Making wrong decisions stabs your self-esteem.
Why would you stick to a bad trade in hopes that it will reverse? Is it the data that is in front of you or a whispering inner voice that says “I know, I am right. I can feel it!!”
So what is the solution? How to stop your mind from causing troubles?
First of all, you have to accept the fact that losing is part of trading. If you find yourself in a loss situation, get out right away and move on. Once you are out of the trade, do not concentrate on how many losses you experienced so far – it will only make things worse.
Losing a trade is not a proof of failure; it is just the dynamic of forex trading and a way to gain experience.
Take cooking, for example. Your first attempt to bake a cake turns out to be a disaster. Does it make you a horrible cook? Not really! And it might take another 50 unsuccessful cake attempts before you find the way that works.
In forex trading, by eliminating unsuccessful trading patterns, you will eventually find a strategy that works. Professional traders lose too, but they don’t see it as a failure. They consider it another great tutorial on how the market works!
Let’s see another example:
What if I told you that yesterday I was losing 80% of the trades. Doesn’t it sound awful? In your mind you have a picture of me with an empty trading account, pulling hair out and kicking the computer with a baseball bat.
While in fact, I had an awesome trading session with an average loss of $500 and an average profit of $8,000.
Now, here is the math:
80 lost trades, each $500 means that I have lost $40,000.
20 winning trades, each $8,000 means that I made $160,000.
That makes my overall profit from yesterday = $120,000.
Who is a bad trader now, huh?! Keep in mind that what really matters is the overall profit and not each trade separately. You won’t be able to shut your emotions entirely; however it is possible to look at trading at another angle and realize that losses are not the end, but rather a beginning!
