How to Control Emotions While Trading Forex?
It is not so easy to overcome psychological problems in trading. It requires time, experience and continuous effort to develop a positive mindset for trading. Without overcoming psychological problems, you will not be successful in the long run.
To overcome psychological problems, one should follow some steps. These steps are described below.
Forget the money:
You should focus on your trades rather than money. In this way, you can avoid many major psychological problems such as fear and greed. It is tough to maintain proper trading mindset if you keep thinking that your hard earned money is at the stake. It is better to focus on the improvements of your trades rather than counting profit or loss.
A commitment to a mission:
A successful trader should have a goal and a plan to achieve the goal. In many cases, traders develop a plan to achieve the success, but after some time, they fail to follow the plan properly. This happens due to psychological interference in trading. You should be confident and brave enough to follow the plan of your mission to achieve success.
Result in real time:
Many traders think forex market is the place where they make loads of money with less effort in no time. This is totally unrealistic thinking. Due to this type of behavior trader becomes victims of psychological problems. This is why you should focus to achieve the measurable and realistic goal with patience. This will keep you away from the psychological problems.
Self-management through self-mastery:
You should have a clear understanding of your personality and mindset to know about the psychological problems which trouble you most. Then you should provide continuous effort to overcome these psychological problems. Only then you will be able to manage your emotions in a positive way.
When in doubt, stay out:
You should be confident about what you are doing; otherwise, fear and greed might grab you firmly. When you are confused about any trading decision, then it is better to stay out. There is no point of opening a trade when you are confused about it.
Never trade or invest based on hope:
There are lots of examples of holding losing positions only because of the hope. The most probable result of this situation is either a margin call or massive loss. Traders even let winners turn into loser due to this mindset.
Act on your own judgment:
There are many external forces influence traders to violet their trading rules or strategy. Rumors, judgment of other people, trading tips etc are behind this influence. A successful trader should have the confidence to follow his own analysis and trading strategy completely. Successful traders act on their own judgment rather than relying on others. It is your money so the decision should be yours.
Do not over trade:
Some traders are too excited to trade that they break their trading rules and trade frequently when there is no entry signal. This situation will lead a trader to a loss of perspective, considerable transaction costs and a substantial amount of mental stress.
Do not jump into a trade:
Entering into a position before entry signal is always exciting and tempting. This is actually a poor practice as it explains that we have a lack of discipline and not following the trading strategy.
Define your risk first:
Before entering into a position, a trader should define his risk tolerance level. A stop loss can save a trader from getting ruined, so a trader should define his stop loss before entering into a position.
Cut the losses and let the profits run:
This is a very well known rule for technical analysts. This is the most important rule for traders. A trader should minimize his loss as much as possible but use risk management techniques. On the other hand, traders should maximize their profits as much as possible to cover up many small losses and to be on the winning side even after losing in some trades.
Invest that money that you can afford to lose:
Never invest that much money, which you can not afford or tolerate losing. Traders often invest almost all of their money to make good profits. Trading has the possibility of both winning and losing. In forex, 90% people lose money. So you should not invest that much money, which risk you can not tolerate. Losing a significant amount of money may lead you to many psychological problems.
Do not fight with the market:
You can not move the market in your desired direction, but you can follow the direction of the market. If you trade against the market to move it into your desired direction, then you will probably end up with loss and frustration. On the other hand, by following the market you can make profits easily if you trade in a disciplined way.