At the beginning of a Trading Career, a new Trader is least concerned about Trading Psychology and emphasis is on technical analysis, chart patterns, and finding a new indicator that can do the magic. Trading Psychology is the most important thing a trader should pay attention to, whether it is Forex Trading, Stocks, Commodities, CryptoCurrency, or anything else. The aim of a good Forex Trader should be to minimize the losses and to increase the profits by setting up a Trading System. There are moments when a trader has to make a quick decision whether to buy, sell or hold a currency pair. Understanding Trading Psychology is vital for the self-awareness of a Forex Trader to make a conscious decision without involving emotions. Strong Mental toughness is required to withstand the pressure of Forex Trading. A human mind that can not control negative emotions is not appropriate for any kind of trading. The traits of strong minds that are needed for Forex Trading are discussed below. A Forex Trader who can practice and develop the below qualities of Trading Psychology would have an edge.
“The pain of discipline is nothing like the pain of disappointment”, a famous quote that can be requoted as “The pain of following a trading system is nothing like the pain of blowing up your Forex Trading Account”. Discipline is the ability to control and regulate yourself. Discipline is a system that is opted to be followed to achieve a certain goal. It enables you to stay focused, allows you to stay in control of your emotions and how to react in a certain situation. A lazy Forex Trader who lacks discipline can not make money in Forex Trading because Forex requires a Trading System to be followed mechanically and being lazy means the emotions are surpassing the logical thinking while making critical decisions during Forex Trading. If a Forex Trader lacks discipline it means the trader can be lazy at the wrong time that results in deviating from the Forex Trading System without any reason. The important thing in Forex Trading is to stick with the Trading System through thick and thin. No matter there are few losses or a losing streak the Forex Trader should not panic and follow the Trading System that is back-tested many times.
Who does not want money? A new Forex Trader wishes to make more and more money as fast as he can. Greed is the biggest hurdle a Forex Trader has to overcome. The desire to become rich overnight seems easy and possible in Forex Trading. The Forex Videos on youtube, different advertisements from Forex Coaches, and Forex Brokers make you believe that Forex Trading is very simple and easy and you can be a millionaire in a few days but the reality is very different. A greedy Forex Trader does not exist because greediness will eat your Forex Account soon. In Forex trading, greed is considered to be the most dangerous emotion because greed pushes you to act by buying or selling the currency pair, again and again, to make more money, and a couple of wrong decisions can result in big losses. Greed pushes you to take more risks, use high leverage to make big money. Instead of diversification, greed pushes you to trade all your money in a single currency pair in hope of hitting the jackpot. For Profitable returns in Forex Trading, a trader have to overcome this obstacle as early as possible. It requires a lot of effort and discipline to overcome greed. If you notice you are becoming greedy, the effective way out is to follow the Trading System with proper risk management. Having a trading plan before every trade, controlling your emotions, and not using high leverage is a great way to avoid greed. Forex Trading is a long long journey and one should stay focused on the long-term goals instead of trying to make money fast.
Fear is considered a natural strong emotion that keeps us alert about dangers. There is always a strong emotional reaction to an emotional or psychological fear caused by anything. Forex Traders have to face fear frequently. Whenever there is a sudden decrease in the price when you have a long order or there is a sudden increase in price on any short order a Forex Trader becomes fearful that there can be a big loss. There can be a situation where Breaking News can come out about any unexpected political or environmental situation causing fear in people as well as in the mind of Forex Trader. A Forex Trader gets frightened and may overreact to the situation. Most Forex Traders in these types of situations liquidate all their holdings to avoid small losses resulting in missing out on possible huge gains. Fear full trading psychology of a Forex Trader is a risk to potential profits which could be made in Forex Trading. A Forex Trader should do a personality self-assessment to find what kind of personality a Forex Trader has and what are the things which make a Forex Trader fearful. A Forex Trader can control his or her emotions after doing the personality assessment and work on screening a positive reaction to negative emotions. A Forex trader could set strict rules to be followed during Forex Trading and might decide how to handle different unexpected events.
Fear of Missing Out (FOMO)
We are taught from an early stage that comparing yourself with others can have negative effects on your personality and can cause anxiety. Fear of Missing Out (FOMO) is an emotional response to a situation where the Forex Trader thinks he is missing the profits that other Forex Traders are making easily. In this situation, the Forex Trader becomes aggressive and makes a sudden decision to buy or sell a currency pair without doing any analysis. Suppose EUR/USD is trading on 1.1784 and suddenly there is a rumor in the market that EUR/USD will go up and all people recommend going long on EUR/USD. The EUR/USD pair goes up by 5% to 1.2373 and you buy at 1.2873 thinking you are missing out on a profit here. After a while, there is a huge selling by banks and EUR/USD comes back to the same price of 1.1784. This happens frequently in Forex Trading. The best way to overcome the FOMO behavior is to strictly follow your trading strategy and open a trade due to a reason not based on a rumor. Do not trade a currency pair based on your feelings. If a Forex Trader loses an opportunity, he should remind himself that this is not the end of the world and there are plenty of new opportunities that would come in the future. A Forex Trader can fight FOMO by limiting social media, following the trading strategy, making a diary or notes of all traders, and most importantly managing the risk.
Patience is a key trait of a successful professional trader. Forex Traders who come to make money in a couple of weeks or months become nervous, intolerant, anxious, and impatient whenever the trade is not going in their way. The range-bound market sessions in Forex Trading become very difficult for impatient traders. To be a successful profitable Forex trader consistent profits are required. There are times when a Forex Trader is required to sit back and wait for the right time and the right trading setup. Financial Markets are not always trending upward or downward, instead most of the time the markets are range-bound. A Forex Trade can lose money in range-bound market sessions in a hassle to trade every time. Some Forex Traders can not live without a trade, they are always in the market and invested depicting a lack of Patience. Taking a break and observing the market without any trade for a couple of days or weeks is a normal practice and one should not be reluctant of doing this. A Forex Trader should not impose a trade on himself/herself. Another situation is when a Forex Trader loses a couple of trades and tries to regain the losses quickly. There is a loss of patience in this situation and the Forex Trader is pushed emotionally to overtrade. Forex Markets can be highly volatile at one time and can be range-bound at the other time, it depends on the Forex Trader how he handles these different situations. It is important to stay calm, be patient, wait for the right time, and stick with the trading plan to be able to make a profit consistently.
A Forex Trader who lacks initiative can lose valuable trading opportunities and trading setups. If there is a lack of initiative a trader can become lazy. There is no scope for Passive behavior in Forex Trading. To stay on the top, a trader is required to take the imitative every time to become more and more productive. Newcomers in Forex Trading lack the ability to make the right decision at the right time and initiate a trade. New Forex Traders are always wasting their time by starring at the charts where prices are going up and down continuously. It happens frequently where a Forex Trader is unable to initiate a trade by having too many thoughts in mind. Every Forex trader dreams to be a millionaire one day but they don’t take the initiative to put in the effort which is required to be a millionaire. A lot of time is wasted on dreaming, staring at the currency pair charts, watching youtube tutorials, and scrolling the social media apps. Motivating yourself to take new initiatives can be a challenging task. Developing initiative into your personality and trading style can take some time. Once the habit of taking the initiative becomes part of your trading system the rest of the path becomes smooth and easy.