FX Psychology For The Successful Trader

FX Psychology For The Successful Trader

Taking responsibility of your capital It is amazing how many people are happy to place their hard earned savings in other peoples hands, accept the losses as its easier to blame someone else than to take responsibility of those funds ourselves.

The first step in any financial success is to believe in yourself and your own abilities. Have you ever notice how the experts on stock exchange get it so wrong to often. It is a real boost to your ego and confidence level when you grasp the trading concept and acquire a real solid forex education.

With this new found knowledge and confidence you can often outperform many professionals with years of experience.

The forex market moves several times faster than any other financial market and with leverage, the rewards and losses compound many times. The best way to overcome the thought of using your own money and the volumes you will be trading is to think in terms points and not in dollars, rubles or pounds. Don't calculate your profit and losses in terms of hard earn currency talk in terms of profits and losses in points. If you implement this psychology from the beginning it will feel as if are trading a demo, a mini or 10 contacts of a full account.

It is common practice for FX traders to refer to gains and losses as points. We don't refer to the currency as the benchmark of our own performance. We reference our losses and gains in points and measure our performance against this.

When trading via a forex demo account most people do very well. Why? Its psychology 101 they are trading without fear. When the real money comes into play; even on mini forex trading account they suddenly find themselves not thinking clearly and trading with fear. The outcome can be many missed opportunities and accumulated losses. They quite simply loose their nerve and give into fear and greed. I have seen this happen to forex traders when they step up from a mini account to a full account. Same thing can happen for a forex trader when they decide to stop trading single contracts and start trading multiple contracts.

Easier said then done, stop thinking about how much money you may gain or loose. Think points not money no matter how many contracts you are trading. Try this approach in a demo account.

Cut your losses and run with the profits.

Simple concept but is one of the most difficult to implement for most forex traders. It can also be the demise for most forex traders. Most traders violate their predetermined plan and take their profits before reaching their profit target because they feel uncomfortable sitting on a profitable position. These same people will easily sit on losing positions, allowing the market to move against them for hundreds of points in hopes that the market will come back. In addition, traders who have had their stops hit a few times only to see the market go back in their favor once they are out, are quick to remove stops from their trading on the belief that this will always be the case. Stops are there to be hit, and to stop you from losing more then a predetermined amount! The mistaken belief is that every trade should be profitable. If you can get 3 out of 6 trades to be profitable then you are doing well. How then do you make money with only half of your trades being winners? You simply allow your profits on the winners to run and make sure that your losses are minimal.

Another good forex strategy is to move stop losses (the point the trade will be sold if it goes the wrong way) behind the trade to a level where a pull back can be accommodated but a reversal will lock in at least some profit.

Self-discipline Use discipline when trading. Ask yourself this question. If my next retail purchase is over $400 how much research will I do prior to making the purchase. If you take your shopping serious take your trading seriously. The point to be made here is be sure that you have a plan in place before you start to trade. The plan must include stop and limit levels for the trade, as your analysis should encompass the expected downside as well as the expected upside.

Information over load

Keep your trading simple. Most traders start out with a simple trading strategy that is successful. But later on find themselves trying to find a better and more profitable system. They also allow themselves to be influenced by other opinions and too much fundamentals. It is not too different from going to a race track where everyone has a sure thing or the information available becomes so confusing you can no longer see the wood from the trees. Trading the stock market is often similar in this regard. Have a simple forex trading strategy, stick to it and keep it simple. The golden rule here is to keep it simple…don't allow yourself to become confused with too much information and if you're not sure or not in the right emotional frame of mind, don't trade.

You are not married to your trades The reason trading with a plan is so important is because most objective analysis is done before the trade is executed. Once a trade is in a position don't analyze the market differently in the "hopes" that the market will move in a favorable direction. Look at the changing factors objectively that may have turned against your original analysis. This is especially true of losses. Learn from your mistakes. Forex traders with a losing position tend to marry their position, which causes them to disregard the fact that all signs point towards continued losses. Don't take more trades in the hope that the market will turn in your favor. Your losses will accelerate.

Do not bet the farm Would you over pay for a retail product? So why would you over trade. One of the most common mistakes that traders make is leveraging their account too high. They start by trading much larger sizes than their account and they don't trade prudently. Leverage is a double-edged sword. Just because one lot (100,000 units) of currency only requires $1000 as a minimum forex margin deposit, it does not mean that a trader with $5000 in his account should be able to trade 5 lots. One lot is $100,000 and should be treated as a $100,000 investment and not the $1000 put up as margin. Most traders analyze the charts correctly and place sensible trades, yet they tend to over leverage themselves. As a consequence of this, they are often forced to exit a position at the wrong time. A good rule of thumb is to trade with 1-10 leverage or never use more than 5% of your account at any given time. Forex currency trading is not easy. If it was everyone would be trading forex.

Now that you have mastered the psychology of forex you will need a good forex trading software application to start making money. Some of the best forex software application are; forex auto cash robot, forex autopilot, forex killer and forex loophole.