The vast majority of traders lose because they cannot control their emotions this causes them to make irrational emotional trades and loses.
Trading psychology and adopting the right mindset sounds easy, but trading without emotion when money on the line is a lot harder than most traders think; it is simply one of the essential traits for investment success.
Having a sound method of trading, is only part of the equation for winning at currency trading, you need to execute a system with discipline and avoid destructive emotions.
The influence Of Hope and Fear.
In currency trading psychology, three emotions that are constantly present are:
Hope, greed and fear and if you fall victim then you won't win.
Hope, greed and fear are destructive emotions and all traders are influenced by them, they are part of all traders’ psychology.
Let’s take hope.
A good example is when a trader hopes a losing trade will turn around, so he removes his stop and lets it get bigger.
More often than not, a small loss becomes a bigger loss and the trader ends up having to take it. Of course he could have had a small loss but hope gave him a bigger one!
Traders who are greedy tend to make their positions too big or hold onto positions for too long and then lose.
Panic in the market how often do we see that?
Where prices make unnatural spikes and come back as soon as they have risen. Traders who buy or sell on fear (just as with greed) normally get hit hard.
These are few examples but there are many more: our emotions cloud our judgment, we know what we should do but we just don’t do it and it happens to most traders.
Executing a trading method with discipline is the only way to overcome destructive emotions.
So how do you do it?
1. You need to get a method that you understand and have confidence in.
You will never follow a method you don’t understand and have confidence, its essential as you need to be able to trade it through periods of losses and have the mindset that it will win overall.
You need to understand why and how your method will work and this will help you avoid chopping and changing methods.
2. Set your stops as you enter the market, so you are not tempted to wait and see how things go.
3. Take your losses cheerfully. All businesses have losses and forex trading
is no different. So, just adopt the mindset of seeing them as the cost of doing business.
Keep in mind if you dot follow a trading consistently with discipline you have no system at all.
Discipline is the essential trait all traders need, so adopting it is crucial to trading.