Psychology and the
mind of the forex trader are
essential ingredients for success in forex trading. The lack of discipline and
a method can be an obstacle to the success of the trader, as currency price
movements in forex are unpredictable.
When a trader loses
money on a trade, he sometimes calls into question his trading strategy. But
sometimes the nature of our misconduct is the result of a psychological
weakness, as are the mistakes we make in life. Traders who make money in forex
have learned from their mistakes. They treat their mistakes as an experience
from which they could learn to improve their approach to forex trading. They analyse
past trades and seek a strategy that would have improved the results in the
same market configuration. This short article will give you some useful ways to
develop your mind and a positive trading psychology.
1) Stop orders
protect your money!
The first thing a
professional trader does after placing an order with his or her forex broker is place a stop order immediately on
the trading platform. It defines a maximum loss, the typical new trader's error
is to change the stop if the trade is losing hope that the market will turn
around. Under these conditions, the stop has no use! A professional trader
accepts the inevitable losses in trading and is pleased to have placed a stop
that has protected his or her capital. The stop can be changed, but only to
protect profits or to further secure the position by moving it to the
break-even point. But in no case to increase risk taking.
2) Never use too much
leverage!
Another common
mistake among novice traders is to want to make gains rapidly using leverage.
Leverage must be used to diversify positions in the financial markets and to
increase the exposure to winning trades. The allure of a quick gain is a
frequent cause of failure, a pro trader has a reasonable and realistic profit
target. He or she pictures his or her performance in the long run. And even
during periods of losses, he or she will not increase risk taking.
3) Adjust your
position sizes according to the market!
The duration of your
position is not important. The difference lies in the stop-loss or the distance
from your target. This means that in order to trade a long-term trend, the stop
must be large and the position needs to be small. The common mistake that
novice traders make is to not define a position size and therefore leverage
that is based on market volatility and the defined objective.
4) Secure your
position to ride major trends!
Often for fear of
losing profits, traders close a position before reaching their target and
conversely they leave open a losing position, hoping that the market turns
around. The trailing stop order can help secure the profits as it reduces
traders' actions preventing him or her from making decisions driven by
emotions. A well-run trade should not be closed manually, but with a stop loss,
trailing stop or limit.
Trading psychology is
a topic that is often not addressed and completely ignored. Generally, traders
are concerned about their trading systems, but not their rigorous application.
Finding the right forex trading strategy is important, but understanding the
psychological aspect of trading should not be overlooked.
More about forex trading psychology and forex brokers at forex-central.net.
