It is often said that forex trading is taxing emotionally and mentally. A lot of new traders who get into this market are not prepared for the mental labor and discipline required by it.
If you are someone just entering the market and worried about the psychological aspect of trading and wondering about how successful traders approach it, this blog is for you.
We will be taking a look at ways and tips to make sure your emotions and thoughts don’t hold you back and make the most of the opportunities the market offers you. Let’s get right into it.
A healthy state of mind
The first thing to do here is identify what is a helpful mindset to trade with and what is harmful.
Most emotions, if not all, are harmful when making financial decisions. Usually we distinguish between emotions on the basis of ‘positive’ and ‘negative’.
Positive emotions are categorized as being those that make you feel good and hopeful. Joy, curiosity, excitement all fall under this category.
Negative emotions are categorized as being those that make you feel bad and depressed. Anger, sadness, frustration, jealousy all fall under this category.
In trading all emotions, whether they are positive or negative, are harmful. Yes, you heard that right. Sometimes even the positive emotions such as hope, excitement, or curiosity can lead to making harmful decisions too.
Why are emotions discouraged?
The simple answer to this pressing question is that they cloud the trader’s judgment. Feeling emotional will mean that you are not thinking rationally and thus not making a decision because it is logically sound but because it is what you want to do.
It gives precedence to the heart over the mind.
So, now that we have identified the problem, let’s see if there are actionable steps that you can take to resolve it.
Tips to be strong psychologically
1. Identifying your mental state
Being aware of what you are feeling is the first step. Before taking a decision, take a step back and think about why you’re taking it.
Is it because it is the safe thing to do and is in line with your strategy? Or are you taking that decision because you think you want to make more profit than what you initially set out to make? Is it a smart financial move or plain old greed?
These are all things you need to be asking yourself. These are your first steps towards self-awareness.
You can’t combat something you are not even aware of. In fact the only way to guard against a threat is to be aware when it is near.
This is why self-awareness iskey to maintaining a stable mindset.
2. Stay true to your strategy
What does this mean?
It means that you don’t deviate from the pre-decided course of action under normal circumstances. Allowing yourself the freedom to change your strategy based on whims will do more harm than good.
We always advise to thoroughly test a strategy out before adopting it as your own. This means coming up with a strategy, following it and testing it out for a good period of time under different circumstances. If after all this your overall profit per month is more than your loss then you might just have found the one.
Once you have found the one, don’t ignore it every time the market acts even slightly differently. If you allow yourself to do this you will be allowing your emotions to take control.
One of the best things about following a strategy is the discipline and consistency it offers. This consistency is your main weapon.
Listen to the advice of one of the best forex traders in the world (also featured in our top 5 forex traders list), Bill Lipschutz, when he says “if most traders would learn to sit on their hands 50 percent of the time, they would make a lot more money.”
A lot of successful trading is just not letting the flow of the market sway you in a direction you did not plan to go in.
3. Don’t take it personally
Be it a win or a loss, don’t take it personally. The market has its strange ways and sometimes we are blessed and other times thwarted. In both of these situations, the best thing to do is to analyze your performance, learn something from it and move on.
One way to make sure you can trace why you win sometimes and lose others is to maintain a trading journal. It will allow you to record your trades. When your whole record is before you like this, you can identify if there are any commonalities between the losses or between the wins.
This type of reflection and self-analysis will do wonders for your strategy. Every trade can offer a lesson. You just have to be willing to take it and learn from it.
Remember that the market is not out to get you. The market functions irrespective of you. So don’t let your losses, or even wins, get to your head.
That is it for this piece. We hope it proved to be useful and you learned a little about ways to control your emotions.
Ultimately the best investor and trader is the one who takes the right decision at the right time. In order to do that, you need to turn your feelings and emotions off.