Psychology of Forex Trading

Foreign Exchange (FOREX) is a market that is working on the laws of trading psychology. Therefore, the results of a trader’s work are directly affected by his or her emotional and psychophysical state. Perhaps at first, it is enough to have only technical and analytical skills for decent performance. However, the long-term success rests mainly on the psychological stability of a trader. Self-control and discipline are the key success factors, which help traders to follow the chosen strategy and achieve good results. If trader is self-controlled, he or she continues to trade in his pre-defined rules without deviating from despite the emotions. It is called “to be in the zone”. This is the state in which you are most productive and make right decisions. This is one of the qualities that distinguish experienced traders from beginners.

How Emotions Impacts a Forex Trader’s Performance?

Emotions that have negative effect on the result of your trading are fear and greed.

There are several types of emotional responses associated with fear: fear of failure, of losing potential profit. For example, a trader who suffers losses feels fear and anxiety that moves the person to rash actions. He or she will begin to open opposing positions or close the current deal, not on the basis of any analysis, but solely on emotions. Such actions lead only to losses.

When a trader experiences greed, he or she tries to make too much profit and deviates from the chosen strategy. Making high profits gives an excessive self-confidence and a sense of superiority, especially for beginners. Most often, after a major successful transaction, trader begins to behave presumptuously: he/she begins to act thoughtlessly to enter the market with unconfirmed signals, which leads to losses that most often exceeding the trader’s previous success.

Good advice in such cases is to keep a trader's diary, to write an action plan before you open a deal.

Avoid Euphoria or Revenge Trading

The next problem is an attempt to compensate a bad deal by making other deals: "I just lost $200, so now I have to find another $200 deal to recoup." It is called “revenge trading”. If it starts to seem like you're trading emotionally, stop and take a breath. Continue to trade when you have good trading plan. A trader experiences a complex of emotions after making a successful deal: pride, excitement, euphoria. However these emotions are dangerous for trading. Sometimes it happens that the trader, who is inspired with previous success, enters the market thoughtlessly making elementary mistakes. Take your time and don’t trade until you become self-control. The psychology of trading is extremely important both for the beginners and professionals. Studying the psychology of a trader will allow you to master the difficult skill of trade, to preserve health and increase capital. Those are some basic advice regarding trading psychology:

1. Take your time.
2. Clearly follow your trading plan.
3. Do not follow the crowd.
4. Try to stay calm in any situation.
5. Improve your skills gradually. It is important to educate yourself and gain knowledge, but training control over emotions is also essential.
6. Do not to trade if you are tired, upset or agitated.