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Trading Pyschology Articles

Posted by Sai Khung Noung on August 26, 2021
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risk management

Whenever you start to feel stressed, fearful or even greedy take a deep breath and refer to your trading plan. Many traders use measures of mass market psychology to influence their trading decisions as part of their trade plan. Most chart patterns used by technical analysts are considered reflections of some aspect of mass psychology that tends to repeat itself.

Do not allow unexpected events to make you change your strategy. Forex traders should identify this problem, with self-reflection being an important process. Remember that there will be more trades, so you are not missing out at all. As stated above feelings of euphoria, overconfidence, and greed can lead traders to failure. Fear of entering the market and placing trades, however, can lead to missed opportunities. An important aspect of the forex world is that you will never succeed unless you try.

Debunking Trading Myths

Before adjusting your take profit level, your trade plan should first reduce risk by adjusting your stop loss level. Emotions are can wreck your control if you let doubt and fear live freely. However, a well designed trading plan will assist you to stay focused and trade profitably without being sidetracked by your gut feelings. However, in forex trading, fear is harmful when we allow the perceived loss-making threats to cause us to make irrational and unsound decisions. However, if you want to succeed in trading, you must learn how to control these emotions and eliminate them from your trading decisions as much as possible. It often happens in day trading and with every single trade that investors do.

All traders should keep all these points in mind while trading, be it a newbie or experienced trader.” Trading without a plan will leave you at the mercy of your emotions. Consequently, you’ll be taking trades based on feelings and without making any meaningful analysis of the market behavior.

While no trader wishes to experience losses, traders can build account equity with proper risk management and trade discipline even if they obtain a higher number of losing trades than winning. For example, one thing that makes a lot of traders to quit trading is poor risk management; they risk more than they should. But why do they practice poor risk management in the first place? The definite one-word answer to this question is ‘greed’, which is an emotion.

The Detailed Trader profile is characterized by a preliminary analytical process before taking a position in the market. Detailed Traders use logical assessment and careful analysis and often keep intricate notes on their trades and reasons for taking them. If I heard of you before I jumped to trading and blowing up my account, I feel like your explanation are quite straight forward and understandable.

There will be a lot of pressure on you, and without a strong desire to earn profits, you won’t be able to deal with it. But, you must be careful not to allow this desire to take hold of you and dictate your trading activities. Your trading decisions should be based solely on logic, and you shouldn’t let them be influenced by greed.

Lessons New Forex Traders Usually Learn After Trading For a Year

Trading psychology aside, practicing is the only way you will ever become successful at anything, and trading is no exception. Keep practicing on a demo account until you feel confident and ready to trade the live markets. Identifying these psychological problems and being aware of them is one thing, overcoming them is something else entirely. Fortunately for you, we have compiled a list of our top trading psychology tips to help you out! Whether you want to trade Forex, commodities or stocks, our tips will help you master your psychology when trading. Before setting a trading plan, you need to understand what are your possibilities, your trading style, and the risk you can tolerate.

Though you can make a fortune in the long-term, it takes a lot of time and patience to become successful. is an African Technology Advisory Ltd. publication. We provide unparalleled insight into enterprise IT trends, innovation and technology in Africa to the most discerning professionals, entrepreneurs, investors and IT decision-makers. Trading can be a stressful activity, so take regular breaks to stay mentally healthy. If you find yourself becoming overwhelmed or frustrated with your trading results, give yourself some time away from the terminal by doing something different. Traders, who find a perfect spot where their position generates payouts, tend to maintain that position for a long time in an attempt to take every penny out of the market.

Remember to stay and stay the course and view trading as a journey. Traders need to identify and suppress FOMO as soon as it arises. While this isn’t easy, traders should remember there will always be another trade and should only trade with capital they can afford to lose. Understand the logic behind your moves, as well as the impact that cognitive biases can have.

Impatience and greed

Some are helpful, but others, such as nervousness, fear, anxiety, and greed, must be contained. Most traders experience more negative effects than positive ones. They might close losing trades too soon because the fear of losing gets to be too much or double down on a losing position when that realization of loss turns into greed.

risk management strategy

Most inexperienced traders lose money because they are unable to take small losses. After loses, traders try to get back the lost amount quickly and open new positions without proper planning. “I’ll close the position when I’m even” – you’ll often hear such words from revenge traders. Yes, you might win back the amount you’ve lost due to luck, but now you have learned very bad lesson and will try the same thing again in the future.

The Adventurous Trader

Most forex trading psychology traders focus on fundamental research, looking at a company’s earnings and true value, before making a trade. This is true whether they’re looking to go long – believing a company will increase in value – or go short in the belief it’s overvalued. Forex markets are notoriously volatile, which means they move quickly and profits can turn to losses in the blink of an eye. The market tends to attract quick-thinking and disciplined participants.

  • If they do, they may avoid certain losses but may also miss out on some gains.
  • Overconfidence can cause traders to open positions that have too high a level of risk for their experience level.
  • This commonly happens when the market is volatile, and the prices are fluctuating rapidly.
  • This trader type tends to be independent and to focus on trading’s material rewards, ideas and relationships.
  • Our egos want to be validated by proving that we know what we are doing, and that we are better than the average person.
  • The psychology of trading is complex and takes time to fully master.

Risk management is crucial and offers many psychological benefits. When you can define the stop loss and target upfront, it lets you breathe a sigh of relief. You understand what you’re willing to risk to pursue and reach your target. Most people are influenced by what they hear, and trading isn’t any different. There are various rumors floating around, such as traders having to win most trades to be profitable or traders requiring a large bank account to be successful.

Continue educating yourself and reading everything trading psychology and risk management related. Applying loss aversion to investing, the so-called disposition effect occurs when investors sell their winners and hang onto their losers. However, when an investment is losing money, they’ll hold onto it because they want to get back to even or their initial price.

Forex trading, also known as foreign exchange or FX trading, is the buying and selling of currencies on the global market. It is the largest financial market in the world, with an estimated daily turnover of $5 trillion. Forex trading can be a lucrative venture, but it is also a complex and high-risk endeavor that requires knowledge, skill, and discipline. It’s important for traders to remain flexible and consider experimenting from time to time.

Use a Take Profit and a Stop Loss

This discussion of the psychology of trading will start with an overview of the basic trader personality types as distinguished by Dr. Van K. Tharp. The Power of Positive Attitude – Some traders have a less difficult time than others tapping into the constructive powers of positive thinking. Similar to other human emotions, greed can become suppressed, managed and overcome. The three factors that contribute to this process include identifying times when you are thinking greedily, readjusting your mind into an appropriate mindset and time.

losing your money

In the Forex market, traders have to make decisions in the blink of an eye, and this demands a certain degree of mindfulness. They should have enough confidence in their own trading schemes and take losses and profits at opportune moments. Forex trading is something that is based on cold, hard logic, and there is simply no room for emotions in such an environment. In order to become a successful trader, you must accept the fact that losses are inevitable. Don’t dwell on any mistakes-instead, use them as learning experiences and strive for better results next time. Having a proper psychology in trading Forex leads to gradual gains.

Trading Psychology in Forex

Don’t Get Greedy – While this tip seems straightforward, most traders choose this route. It looks like a great idea to stick to one single strategy that generates a payout. However, you should understand that the market will always change directions. Therefore, you must be prepared and adapt to new situations by reading trading psychology books, expanding your knowledge, and utilizing new strategies.

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This material has been prepared using the thoughts and opinions of the author and these may change. However, does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. “Animal spirits” is a term used by economist John Maynard Keynes to explain how human emotions can drive financial decision-making in volatile times. Fear drives decisions that appear to avoid risk and generate little return. A lot of us are very passionate about forex trading, but you have to know that there’s a fine line separating this from addiction. Forex trading is a business, which means it needs the right set of tools in order to maximize your skills.

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It will also allow you to re-establish the control of logic and reason, which is your ultimate goal. However, this can steer you away from a carefully planned trading strategy. Even worse, it could cause you to make rash decisions, with the hope of turning that losing trade around, causing you to lose much more money. Instead of focusing on the long term plan, your mind wants to focus on making the best out of this short term losing position.

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