Forex Trading Psychology: Preparing Yourself

Forex Trading Psychology: Preparing Yourself

by Harold Hsu

Before the start of each trading day, take a few minutes of "quiet time" to yourself. Imagine yourself looking at the day's price fluctuations, and imagine yourself having one or two winning trades, and one or two losing ones... See yourself cutting your losses and letting your winning trades ride. See yourself being objective about all your trading decisions: the goal is to make an overall profit at the end of the month, not to win in every trade today.

Many traders cannot accept the fact that they'll typically get some winning trades and some losing ones. But it's inevitable. They cannot let go of the obsession to win all the time... They know they cannot win in all their trades, and yet they spend unnecessary time obsessing over the one or two bad trades that they made today.

The key is risk management, not risk avoidance.

It's important that you psyche yourself up to accept any losses, even before you actually begin trading for the day. You'll need to practice the emotional experience of accepting a losing trade. If you wait till you actually start losing to start practicing, then it's often too late. Your powerful emotions will convince you to hang on to your losing trades, and to remove your stop-loss levels: "If it goes down, it'll have to come back up eventually, right? I'll just need to ride this one out"

Unfortunately, the answer is no, you can't. You'll need to have appropriate stop-loss levels and stick to it, no matter what. That's what trading discipline is all about. And preparing yourself emotionally before each trading day is a great way to help with your trading discipline.

As easy as this may sound, this will probably take some practice. Try this quick five minute "mental preparation" exercise every day and you'll soon experience the emotional benefits (less anxiety!) and make better (more objective) trading decisions.