The psychology of Forex trading
Most books, blogs, and advice articles about Forex you can find online deal extensively with trading tactics, exit strategies, and complicated calculations – but very few address the importance of dealing with emotions like anxiety and fear. I believe that the importance of psychology and proper mental preparation in Forex trading is too often overlooked, and hopefully, this article will be able to shed some light on this important topic.
What is Forex psychology?
First of all, let’s define our field of interest – the psychology of Forex (or any other financial) trading. In my opinion, the emotional aspects of Forex trading have just as much to do with the success or failure of the trade as your strategy or knowledge of rules of the trading system. Every emotion that the Forex trader might feel when placing a trade or exiting one can make a difference and affect his behavior, even though he might not be aware of the fact. Being able to deal with this emotional stress will enable the trader to be in full control of his decisions, which will ultimately make all the difference in the market.
How does psychology affect Forex trading?
So, if controlling one’s emotional state is so important from the perspective of Forex trading, why isn’t this topic covered more often? That’s a good question. Most Forex experts are not psychology experts at the same time, so they tend to deal with what they know – trading systems and exit strategies. And at the same time, most psychologists don’t know much about Forex trading. When these two are put together, we get the situation we are in, and the topic of Forex psychology doesn’t get as much exposure as it’s importance deserves.
I strongly believe that every aspiring Forex trader can benefit from simple psychological exercises. These can positively affect one’s mindset, improve their level of enjoyment, and most importantly – their profit margin.
How can I improve my Forex psychology?
First thing every Forex trader who is looking to strengthen and improve his mental state should do is to decide on what he’s hoping to get out of it – or set some goals. Some Forex traders will aim to become able to always follow their entry rules, while others want to be able to stay patient and wait for the next setup if they miss their entry. Others will want to limit their risk exposure, while others will try to manage their trades by their exit strategy, rather than by guessing. In any case, the Forex trader will want to limit the effect of his emotions – the irrational part of his brain – have on his decision making and logic.
Once your goal is set, the best way to move forward is to design a strict set of rules you will follow in all of your Forex trades – and stick with it. In practice, the best way to go about this is to design a trading system and practice it for as many times as possible – while taking note of every trade that takes place. If you are able to do this, you will soon start to notice that the fear of losing and anxiety will have less and less effect on you – until one day, they are only a distant memory.