People like to say that forex trading is a gamble. We don’t believe that. Traders who develop good habits and attitudes towards trading, don’t see it as a gamble or stroke of luck.
There is a lot of talk around about the technicalities of forex trading; heaps upon heaps of information. However, these strategies and technical factors cannot make you profits without you using them at the right time. In order to make these decisions, it is important to guide your thoughts in a healthy direction.
To help you achieve this we have put together a list of psychological patterns that are all too common among traders and highlighted some dos and donts.
- Starts with acknowledgement of your emotional patterns. Become aware of them. Understand that humans do get greedy sometimes and you are only human so it will probably happen to you too. Staying in denial helps no one, especially not you.
- Be consistent– do not let greed or fear change your strategy. If you’ve had four losing trades and you change your strategy right before the winning one to take smaller profits for fear of losing again- you just missed a big profit. Sure, if you find out over a good period of time that your strategy doesn’t work, you should definitely look into making some changes, but don’t base this decision on emotions and a sudden change.
- Make a strategy that suits your personality. If someone is doing well using a certain method, it’s because they have made a strategy that compliments their strengths and weaknesses. You need to come up with your own.
- Detach emotionally from your trades. This means that you realize that every trader faces losses and the market is not out to get you. Otherwise, you will either end up losing confidence or become over-confident. Both of these are dangerous.
- Remember that just because something happened once with one trade, doesn’t mean it’s going to happen again. In the market there is only probability. There are no sureties. So when you have a good strategy, stick to it.
- Don’t take risks when choosing lot sizes or trading amounts. Only allow as much risk as your account can handle without you feeling like everything depends on this one trade. Avoid creating such high pressure situations for yourself. This is because losses are bound to happen.
- Don’t let emotions dictate your actions– fear, doubt, excitement, hope, and even greed sometimes. You have to find a middle ground. The key is to make sure your average profit is higher than the average loss.
Excitement and hope can make you sell at a small profit when you could’ve made a big one if you’d been patient.
Fear does the opposite- it causes you to take quick profits for fear of losing money. Our fear can prevent us from selling at a small loss to avoid a big one, because we don’t want to sell at a loss at all.
In reality, the difference between your average profit and average loss is your actual profit or loss. So taking small profits with a bunch of big losses will mean that your average loss is probably higher than the average profit, so the “small profits are still profits” attitude will not work here because you’ve also got to keep the losses in mind.
- Do not change your rules and strategy because of one bad experience. You might want more profit than your initial take profit mark. Or you might want to stay in a trade longer. You have to remember that if the market is going up now, there is no guarantee that it will continue to go up. You change your rules because you regretted them one time when you missed out on an opportunity to make more profit than you ended up making. And now you’ve had major loss.
- If you’ve been right 8 times and taken small profits and then you’re wrong only twice but you keep hoping the price will come up and lose money more than what you made- that 8 times of being right doesn’t count. You’re still in loss. So don’t let hope, greed, or fear change your marketing strategies. If you keep trading on whims, it will not be an overall profitable bargain.
- Winning traders don’t let a small downtrend in their equity graph make them question their future performance. Your graph will not be linear. It goes up and down. You need to be mature enough to see the bigger picture and the movement of the line over a longer period of time
- Long-term profits have little to do with luck. It is all about consistency and sticking to a good strategy because the winning and losing streaks will even each other out.
- Don’t rush into new trades after facing some losses. Don’t feel like you need to make up for those losses right away. This is because when you decide things in a state of panic and rush into them, you are very likely to take bad trades. On the other hand, don’t become paralyzed by a loss or series of losses.
- Don’t turn a currency pair into a challenge for yourself. If you lost once, don’t make it a mission to “win”. There is no competition. Trying to win a competition that doesn’t exist will make you want to trade a losing pair again and again incurring more losses. “Proving” yourself, is not worth it. Don’t take trade outcomes personally.
- Don’t dwell on short term losses. Move on with a clean slate.
To make forex trading a sustainable source of income, successful traders plan long-term. They don’t get sidetracked by small setbacks or wins.
Therefore, if you want to get good at it you have to learn to see patterns and be consistent. This does not mean that you don’t take action when a profitable trade is staring you in the face. When things turn in your favor, you should definitely use that opportunity.
You just need to observe market trends enough to know when it’s right and when it’s more of a thrill than anything else. Don’t use trading as your weekly dose of adrenaline.