Psychology of forex trading

This post will discuss the mental attitude required for success at Forex trading. The  technical concepts are important but the psychological aspect also plays a vital role. Some of the writing will be very blunt and it is not designed to upset people but rather to change their thinking.

What do you expect out of life?  This is an important question because what we believe is what we will get. Our thoughts are the starting point of all that happens to us in the world. It is vitally important for success that we develop and nurture positive thoughts about ourselves and the direction that we wish to take. Positive thinking may seem to be theoretical and superficial but it is so important that this be cultivated. You must believe that you will win and that nothing is going to stop you.  Stop berating yourself and believing that other people are better.  The creator made us all equal and you were not designed to be mediocre. You have the power of the universe available to you and all that needs to be done is to embrace it and step into your own power.

The next important point is that every person needs to accept responsibility for where they are.  The idea that circumstances dictated your situation in life is flawed. You can’t control your outer world but you can control your inner world and how you react to situations. Every person has to deal with difficult circumstances but what separates the champions from average people is the ability to find the opportunity in adversity. In the midst of adversity you must be finding ways to win and not let your circumstances dictate your reality.

I have not even mentioned the word trading yet and this is intentional. The blunt fact is that your attitude to life and your present circumstances will overflow into your trading life. If a person is in the habit of complaining and finding excuses in their present job then they will do the same thing in their trading. Find joy and be grateful for what you have now before you even consider trading. If you have difficulties at work or at home then it is vital that you change your entire mindset towards these circumstances. Find the positive in the circumstance and shift your mind towards finding opportunity in the adversity. No matter how demeaning your job is, treat it like you are the CEO of your own life and behave in a confident and purposeful manner. I cannot stress that trading will not solve your problems but will only add to them unless you start changing the way you think.

The previous paragraphs concentrated on general success principles. The particular psychology for Forex trading will now be discussed. A trader has to believe that they have the edge and will win in the long run. Forex can be emotionally difficult because you have your hard earned money on the line. It is not easy accepting a loss but the key is to concentrate on the big picture and developing a trading edge. Your edge can be developed in the following ways:
  • Practice discipline. Have a trading plan analysed and prepared for the week ahead.
  • Stick to your trading plan and don’t give in to impulses and gut feelings.
  • Create both a money management and risk management strategy designed around the capital that you have available.
  • Use only capital that is not required for necessities. Don’t use your rent money .
  • Treat trading as a process. It is a process of education. Your emotions should be exactly the same whether you win or lose. It should not be about the outcome but the process you used and whether you followed your strategies.

The hardest part about trading is that the psychological affect of losing money can be very distressing. Sometimes, losses can mount up even if you chose the right option. It can be upsetting if you chose the right direction but short term volatility in the market triggers your stop loss. A trader needs to observe their emotions and not let fear dictate their trading decisions. Fear and over analysis can be just as devastating as impulsive trading not based on any strategy. These emotional issues can be very challenging but a trader needs to master fear and greed. There is no mysterious remedy for this, you just have to destroy the fear and greed thoughts the moment they appear. You are the only one that can do this and it is vital that you take charge of your mind and control your thoughts.

It is not a mistake that all this seems a little daunting. Forex trading is challenging and 90% of people fail at it because of the psychological aspect. It is easy to learn the technical aspects but mastering your emotions is the greater challenge. The reward is immense so it is a worthy goal. It is an appealing lifestyle because all you need is a laptop and reliable internet connection. There are no employees, rent to pay or other massive headaches of running a business. Once you build your confidence you can easily replace your income with trading just a few hours a week.  I chose to write this article before any discussion on the technical aspects of trading because I rank this topic as the most important. There is a lesser chance of success at Forex trading unless you can understand and apply the points mentioned in this article.  

Psychology of forex trading

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