Last update 2020.07.31
Fear, greed and anxiety are emotions that exert the high influence upon an individual’s performance. Automatic emotional responses, such as these three, have been scientifically shown to “short-circuit” the more complex decision-making processes involved in active forex trading.
The truth is that developing a trading psychology strategy is one of the most important factors separating successful traders from unsuccessful traders.
While it might sound strange – or obvious for someone – discuss this topic in Forex trading, developing discipline and the ability to manage your emotions will help you remain cool under pressure during trading activities, whether you are cutting your losses, or taking your profits before the market turns.
Take a look at some key trading psychology tactics to keep in mind:
Stay calm: As exciting as trading can be, it is still stressful work. There will be a lot of setbacks on your way to the top. Emotions can force your hand to open a trade too early and/or close it too late. The main cause of stress for beginners in trading is the fact that some Forex trades will end in loss no matter what – it’s just the way the market is.
Just remember that war is not won with a single battle. Rather, it is overall performance that counts.
Understand your risk tolerance: Every person has a different level of risk tolerance, and this will influence the size of the chances they take, the losses they are willing to experience, and the psychological effect of them. To manage your stress levels while trading, it’s important to consider your level of risk tolerance in advance, and choose trading strategies that support this.
Set realistic trading goals: It’s important to be realistic with your trading expectations, as this will help you assess the best times to open and close trades. Many new Forex traders have very high expectations about their potential profits, and this causes them to trade very aggressively, with large sums of money and fast decisions.
Again, start small to test your knowledge and skills, and as you start to reliably achieve the results you want, you can set bigger goals.
Set your limits in advance: Before embarking on any Forex trade, you should have defined the price at which you’ll open the trade, the price at which you will close it and take your profits, and the price at which you will close it, should the market turn unexpectedly, thereby cutting your losses.
Then, once you have set those limits, it’s important to stick with them!
Many new traders choose not to close a trade because the market is still moving in the direction they want it to, only to then lose all of their gains when the direction suddenly changes.
If your trade hits your predetermined target, close it and enjoy your winnings. If the market moves in the opposite direction, close the trade or set a stop loss so it will close automatically.
Prepare for the worst: While this might sound pessimistic, in Forex trading it is better to prepare for the worse than expect the best. There have been many times in history when financial markets and individual trading instruments have experienced sudden spikes or drops in value.
By considering the worst possible outcome of a trade, you can take measures to protect yourself, should this happen, such as by setting a stop loss in advance.
Disclaimer: Forex and Contracts for Difference (CFDs) are complex instruments and come with a high risk of losing money due to leverage. Forex trading is not suitable for everyone. You should consider whether you understand how forex and CFDs work and whether you can afford to take the high risk of losing your money.
The forex brokerages displayed shall disclaim the overall performance of traders in their platforms. Oanda warns that 76.8% of retail forex traders lose money trading CFDs. XTB warns that 80% of retail forex traders lose money trading CFDs. The forex broker Fxcm warns that 69.66% of retail forex traders lose money trading CFDs.
The performances aforementioned are not related to Wiseinvest AI forex trading and AI forex signals system. You can check the performance of our AI forex system on our dashboard.