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Forex Trading Psychology

 

Gloucestercitynews.net (Oct. 25, 2019)--Trader’s psychology plays a very big role in their success or failure. It is also the reason of most of the mistakes traders make.

We cannot change the way we feel, but what we can change is the way we approach these feelings by studying the psychology of successful Forex traders and then apply it. Today we will look at how we should behave and react to trading situations from the right perspective of Forex trading psychology.

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Forex Trading Psychology

Fear has a strong focus on the options considered by the brain.

However, this can distract you from a carefully planned trading strategy. For example, if you are trading double stochastic - Finmaxfx just focus on it without making rash decisions. Instead of focusing on the long term, your mind wants to focus on getting the most out of this short-term loss-making position.

Having realized the role of your own psychology during Forex trading, you be able to fight your fears more effectively, which will allow you to restore the primacy of healthy logic and cold calculation necessary in the market during trading.

Forex trading psychology - prejudices

It is easy for traders to feel confident in their ability to stay calm and gather during trading sessions before the market opens. However, as soon as the market starts to work, this is another story.

Test yourself to what extent you are subject to one or more of these prejudices:

  • Tendency to be over confident
  • Tendency to link "yesterday's" conclusions to "today's" decisions
  • A tendency to avoid losses

We will discuss every one of them.

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Psychology in Trading - trading euphoria

The first lesson on the psychology of trading on the Forex market is a warning about trading euphoria. People are naturally self-centered. Our ego needs to be recognized so that we know that what we are doing is better than what the average person is doing.

That is why it is so difficult for many people to admit their mistakes. The solution is simple: allow yourself to make mistakes! Don't pull the loss, close it in time by hard stops, following your own rules. That way you will save time and money.

Psychology of Forex trading - anchor effect

The second lesson of trade psychology concerns the so-called anchor effect. This is a conversation about comfort zones. Traders subject to this prejudice, analyzing the market, roughly speaking, come to the conclusion that tomorrow the market will be similar to today, so today it is similar to yesterday's.

The anchor can be the recent high price of the instrument, which was kept at a certain level for a long time. Tomorrow the price will fall, and the day after tomorrow it will fall again, but the trader who is focused on the level, will not be able to understand that the market is gone.

Markets are changing. When making forecasts today, take into account past levels, but do not get attached to them unless your analysis requires it.

Psychology in trading and fear of losses

Fear of loss is regulated in a sense not by the desire to recognize the flawedness of one's own course of thought, as in the first paragraph, but with another quite tangible sense of losing what is already one's own. When the order sags, the hand reaches into the pocket to plug it.

We evaluate and compare possible profit and loss in an interesting way. For example, when considering options, a person would rather prefer a variant with a potentially lower loss than a potentially higher profit, even if it seems so easy.

Experiments have shown that people are more likely to invest in a financial instrument if they are told that the average profit is 7% rather than the same instrument if they say that the profit has fallen to 7%.

There are other prejudices that prevent traders from making money everywhere, and even the above mentioned ones can have more consequences than mentioned.

Forex trading psychology - conclusions

The only conclusion to be drawn here is that we are all people who are subject to varying degrees of prejudice. Some will help us in situation A, and spoil life in situation B.

The best thing that can be done is to give up prejudices completely, reducing the bidding to a mechanical adherence to one's own rules and one's own plan.

 

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