For effective trading on the international currency market, it is important to have a good theoretical background, ability to use strategies, as well as follow political and economic news, and understand what impact they have on currency rate trends. However, these skills do not guarantee successful activity in the market unless the trader develops knowledge of Forex trading psychology.
Not only statistical indicators, but also the emotional state of the trader influence the total trading results. Everyone who seeks to master Forex trading as the main source of their income should understand that learning the trading psychology and further self-control together with self-discipline will form a competent trader.
Psychological characteristics and emotions that are companions of trade in the market:
- Greed is a toxic emotion, which affects both novices and experienced professionals, who are instantly influenced by the desire for quick profits;
- Excitement is another emotion that suppresses common sense in favour of making a high-risk deal that has a chance for a quick profit;
- Fear is not such a common, but harmful emotion, in the event of which it is recommended to stop working and take a break;
- The hope of profit is another feeling that hinders the use of statistical analysis, replacing it with “lottery” trading methods.
In order to deal with these and other emotional factors affecting the work of a trader, it is recommended to study the psychology of trading in the foreign exchange market. Now let’s have a look at what trading mistakes these emotions can lead.
- Lack of analysis at the time of making important trading decisions – an inexperienced player may mistakenly accept a trend correction as the main move. As a result, followed by greed, the trader chooses the entry point to the market incorrectly and then incurs losses. It’s highly important to read the financial news on a regular basis, for instance, the market overview.
- Fear and emotional stress before trend reversals are typical for beginners. Experiencing impatience and fear of losing a part of the deposit, they prematurely close the deal, losing money.
- Unjustified impulsive movements – the trader impulsively opens an order while sharp jumps in prices. Sometimes it is profitable, but more often it brings a loss since the decision was made spontaneously, cause there was no detailed analysis of the market situation.
- Excessive trust in trading advisors – often such scripts are not controlled. Incorrectly configured advisors lead to irreversible consequences. After all, computer technology responds to the movement of the market belatedly.
A trained trader should be guided by the generally accepted rules:
- The process of capital management is necessary, taking into account the current price zones and compliance with the rules of money management. This will help minimize risks.
- It is necessary to adhere to the trading plan – cold calculation, painted in details, should prevail over emotions. You can not deviate from the planned procedure.
- Sometimes it is better to stay idle – the market is not constant. You can make a dozen profitable trades in one trading day. But sometimes it is recommended to wait, watching the events taking place on Forex, accumulating information and comparing facts. The competent trader always knows when to act and when not.
- It is necessary to constantly strive for new knowledge – sometimes even half a year is not enough to understand a certain view of the market and the corresponding trading strategies. Therefore, theoretical knowledge is supported only by practice.
So now you can see that psychology is a significant issue in Forex trading. Trading on the foreign exchange market is not a game in a casino, but serious everyday work. That rational approach is the most effective one. Besides, anytime you can try online forex trading for free on practice Demo account.