The psychology of the trader – the key rules for successful Forex trading – LA Progressive
Determining the direction of currency prices is the key to profit on Forex. And probably the most challenging skill to acquire. However, as important as it is, the predictive side is far from being the sole success factor for the trader. To put it in the proper order according to the testimonials of seasoned traders, besides opting for a reputable Forex broker and sound risk management, psychology and emotional control significantly affect the outcomes of trades.
Badly managing your emotions is the main factor in losing traders.
Many beginners think that with the proper method, they will win every time. Usually, they are wrong. In front of the screen, a trader experiences several psychological biases that lead him to make such a decision. Any trader, no matter how experienced is, will not deny that the frustration preceded a loss. What will determine if these traders are good or not comes down to whether they will feel this frustration in the next actions?
How do cognitive biases manifest in the actions of traders?
There are some fairly typical scenarios that we will now explore in detail.
Subject to risk aversion, the traders will have to ensure their gains by reducing them. It is the principle of “one yours is better than two you will have.” We prefer, in this case, to win often but not much. We prefer to ensure small gains than to take the risk of winning large sums. It’s entirely against the rule of “let your winnings run.”
In a losing position, the traders are subject to deep discomfort, and this simply because they don’t want to lose. So in order not to lose, devoid of any logic and only based on hope, they will keep the position open until they understand that there is nothing to save and that it is necessary to cut. At that time, he or she will take a heavy loss that he could have saved himself. This principle contradicts the basic principle of trading, which is “quickly cut your losses.”
One rule dominates in trading. You should know that nothing is taken for granted. And yet we often forget, after several great successes, the trader feels confident.
Taking too much confidence, the traders think they are always right and do not think they can be wrong in their analysis. They consider their ability to analyze to dominate the efficiency of the market. These kinds of traders are wrong, but the consequence of this arrogance is that they will have to increase the exposure and, therefore, the risk because they always win. But as soon as luck no longer serves them, traders face losses that have serious consequences.
How to fight against emotions?
The goal is not to fight against oneself. Instead, the key is to remain lucid and to know how to take a step back. Despite the desire to succeed, the ability to dissociate the emotional side from the operational side comes with experience and time.
However, some methods have been proven to work. The disciplined use of a trading plan is a very rewarding experience because it forces the trader, despite the emotions, to respect the rules.
For people who are struggling to fight against the ailments mentioned above, it will be interesting to write the trading plan rules on a sheet and read them before and during the taking of positions.
After a few weeks, you get used to the idea of letting your gains run, quickly cutting your losses, and staying humble.
Moreover, by dint of work and self-control, we manage to get out of it.
Another method consists of keeping a trading journal, describing each trade, first the technical details, then the comments on your objective feelings during your positions, your mistakes.
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