Forex Trading Psychology - The Crucial Principles
Many aspiring Forex traders find themselves frightened of joining the ranks due to common misconception that Forex trading is too difficult or even worse - a losing game. This is quite frankly not true.
Another way to say it would be that by applying several very easy to implement techniques, the Forex trading game could be effortlessly conquered.
The way that I see it and throughout my experience as a Forex coach these techniques have everything to do with the trader's mindset. I like to refer to these techniques as Forex trading psychology. It has been said that trading psychology accounts for 90% of a trader's success. I find this to be absolutely true.
In this article I wish to address several of what I find to be the most important concepts that every Forex trader needs to address. Applying these techniques will make a positive difference in any trader's overall performance; fully understanding these techniques will make any trader successful for life regardless of what the market does.
- A successful Forex trader always trades with a pre-determined plan.
A trader that has fixed goals and a method that is back-tested and proven to earn realistic returns over the long term is many steps ahead of a trader that trades based on gut feelings or a method that has variables.
By having a solid and detailed Forex trading plan any trader is able to know exactly what is reasonable to expect and precisely what to do every step of the way in order to achieve these predetermined goals. Also, by having such detailed plans one eliminates hesitation as well as the great majority of 'surprises' that the market throws at him or her.
Entries are clear, stops are based on rules and reason and an exit strategy is in place. This is done before a trade is executed. All that a trader needs to do is follow the plan knowing in advance that this plan is profitable over the long run. This means that any specific trade might be a loser, but overall the winning trades will compensate for the losing trades and turn a profit.
- A successful trader is disciplined
Now that you know what needs to be done - just do it!
Sounds easy but too many Forex traders encounter this to be a really difficult task. I can assure you that it's not. If you have a good plan that is back-tested and goals that motivate you being disciplined becomes easier.
In time you will learn how to effectively control your emotions and overcome impulsiveness. Although this is somewhat of a challenge, I know that you can do it - anyone can.
- A successful Forex trader follows a sound money management strategy
'There are bold traders and there are old traders but there are no bold old traders'. Forex traders that don't follow money management rules go broke. This should be part of your Forex trading plan but I write it separately just in case. Proper money management rules are crucial, don't neglect this important issue and of course be disciplined!
Here is a thought that many Forex traders don't consider; don't think about the results of one year, think about your accumulated results of ten years. What I mean is simple, if a trader begins a trading account with $1,000 and earns consistent 10% per month, his or her balance after one year will be $3,138. That's excellent results. However after ten years (considering that no withdraws are made), the balance will be a staggering $92,709,068. That's the power of compounding.
Money management is key and small profits accumulate. Protect your capital and get a long term mindset.
I am a firm believer that it is not the system but the attitude of a trader that makes the crucial difference between Forex success and failure. Forex trading psychology plays a significant role in a Forex trader's bottom line; master it and you too will easily become a successful Forex trader.
I am an active and profitable Forex trader. I am also a personal Forex coach.
Being a trading coach is a responsibility that I gladly accept, watching students 'get it' is both a pleasure and a challenge that I enjoy very much.