Understand the Role of Trading Psychology
As a beginner you will probably be thinking that learning all of the technical stuff is the hard part, but if we were to fast forward 5 years, and assume that you are a successful Forex trader, you would have very different beliefs. The truth is; the hardest part about becoming successful at trading Forex is fine tuning your brain to cooperate.
As we all know and are constantly reminded everywhere, 90-95% of traders fail. There are plenty of good trading methods out there that work (some better than others), yet 90-95% of people fail. Some of those statistics will be the gamblers who don’t know what they are doing and weren’t interested in learning properly anyway, many of them were probably tricked with get rich quick claims and don’t actually realize they are gambling. We must assume that the rest of the people that fail are those who studied and understood Forex trading and wanted to pursue it, after all, if you studied it and didn’t understand then you wouldn’t bother continuing would you?.
So, with all of these people who understand Forex trading still failing, how can we break that group apart?. Some of this group would have to be those who didn’t quite look around enough and received bad education, the rest would be those who received good education and studied it well. This last group of people still have a high failure rate! Since you are reading this and taking the time to study then this is the group you will most likely be in. Assuming that you do go through all of material that you need to, develop and understand a complete trading plan, and prove to yourself that it is profitable before going live, we need to address the reasons for the continuing high failure rate after that.
Discipline, Patience and Confidence
Discipline and patience are required if you want to learn how to develop a complete trading plan properly in the first place. It won’t happen overnight and is a lengthy process, plus you won’t be earning any money from it. It’s easy to rush things and jump in before you are ready because you smell the money, it’s not so easy to maintain the discipline and patience required not to. Once you make it passed that phase you will then need more discipline and patience to test your plan properly and make sure that it works. This will also take a fair amount of time and the smell of the money will be stronger because you now have your plan. The discipline and patience to get through this phase does come with a reward though. By taking the time to properly test your plan and see it working you will build up your confidence in it. This will be very important for you later on when the emotions of trading real money come in to play.
Fear, Greed and Anger
Once you complete your trading plan and test it the next progression is to start trading with real money. Logically this should be no different from when you were demo trading but you will find that it is not. Emotions are important for real life or we would all be cold and robotic but you need to switch them off when Forex Trading. The biggest problem for most people is the fear of loss and there are a couple of ways to tackle this. Firstly, you shouldn’t be trading with money that you can’t afford to lose, and secondly, you should maintain the discipline and patience to build confidence in your trading plan as discussed above. Just try and keep a level head with your confidence as you see your plan working or greed may take over. The fact is; no matter how good your plan is there will be loss sometimes, getting greedy and loading up on a trade that results in a loss will make you angry. Anger will force mistakes and you could get on a very ugly path to destroying your whole account. If your trading plan accounts for loss as it should then there is no way you could know which trade will be one of those losers. This should in turn combat greed.
Forex Trading Psychology Tips
It is easy to read about and acknowledge all of this but some of it is unavoidable. Maintaining the discipline and patience to develop your complete trading plan, then build confidence in it, are the easy parts because they can be taught. Dealing with the emotional effects of trading with real money will be a slightly different journey for everyone. I’m afraid you will need more discipline and more patience to get through these emotional elements. Just remember the following points.
- A complete and properly tested trading plan will build your confidence in it.
- The more confidence you have the quicker you will master your emotions.
- Never trade with money that you can’t afford to lose and fear should not be an issue.
- You plan should account for loss so greed should not be an issue.
- You plan should account for loss so anger should not be an issue.
Whatever you do don’t expect perfection from yourself, no matter how much you read or how smart you are you will make mistakes early on. The only question that remains is; will you keep making them or learn from them?