Forex Trader Psychology

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.