Why Forex trading psychology is so important
If you have traded the Forex market for any amount of time you have probably realized that it’s a very psychologically intense profession. Meaning, your mental state and your ability to control it, are of paramount importance to succeed long-term in the markets. Many traders come into the market “running and gunning” without giving a second thought to how their psychology might affect their trading or how they can effectively manage their mindset as they trade. However, the reality of the situation is that unless and until you decide to attain the proper Forex trading psychology, you will never succeed long-term in the markets.
• Money management directly affects Forex trading psychology
Perhaps the most significant factor that affects your Forex trading psychology is your forex money management plan, or lack thereof. Traders who don’t manage their money properly, inherently induce an improper trading mindset because they become too attached to any one trade. When you mismanage you’re trading account money by risking too much per trade or by over-trading, you are simultaneously assigning too much importance to each trade, and this causes you to become frustrated and emotional. Once you become emotional there is no telling what you might do; enter numerous trades for no reason, add on positions to your current trade for no reason, or even go “all in” with your trading account. The point is that it’s a very slippery slope that leads to full-blown emotional trading when you don’t manage your money properly. So, the most important way to manage your forex trading psychology is to manage your money correctly on EVERY single trade.
• Planning your trades
Another very important part of attaining and maintaining the proper Forex trading psychology, is having a comprehensive Forex trading plan. You need to know what you are going to do in the markets before you do it. Otherwise, you are basically going into “battle” with no war plan, and this is just a very silly thing to do. Just like in real war, you cannot know “for sure” what the enemy is going to do, and so the only thing you can do is control yourself as good as possible by pre-planning all aspects of your trading, most traders don’t do this, so if you are one of the few who do, you will likely be one of the few who does not trade emotionally and thus makes money in the end.
• Tracking your trades
The next thing you need to do in order to properly manage your emotions as you trade the market, is properly track your trades in a trading journal. No matter what forex strategy you are using, proper tracking of trades is of paramount importance to your long-term success. The reason why, is because you need to be able to see via tangible evidence how you are doing as a trader. If you are trading in a disciplined and controlled manner, your trading journal will reflect this, and the fact that you have physical evidence of it will cause you to want to continue to trade disciplined. If you are trading undisciplined, you will also be able to see this via your trading plan; this will then (hopefully) cause you to want to change your trading habits to become a more consistent trader.
