Most traders focus a lot of time on technical or fundamental types of analysis, and some of us will not neglect to improve our skills in money management methods either. But even with mastery of these necessary and important skills, success will be elusive if we do not improve our psychological responses to the pressures of trading.
Trading psychology describes the various challenges suffered by forex traders during their interactions with the market. The various emotional responses that we experience cloud our vision and make decision making harder. Understanding them is easy, and getting rid of them, or using them in a more productive way depends on a systematic, well-ordered trading experience.
Fear
A fearful trader simply does not know what to do. Where he’s right, he vacillates, where he’s wrong, he fails to correct his error. Fear is not helpful in protecting us from risk. A fearful trader may still take risks in order to correct past mistakes, with painful results.
Greed
A greedy trader always has something to do. He’ll act on the flimsiest chance of success, because he feels that opportunities are flying away if he waits. Since he can’t weigh his chances and ideas properly, his results tend to be dismal. That can lead to depression, loss of self-esteem, and even greater losses.
Panic
Panic is the sense of helplessness and lack of control that a trader sometimes feels after encountering a losing position. It is universally harmful, and the only way of dealing with it is nipping it in the bud. You need to prevent fear from turning into panic, rather than deal with the symptoms of panic as they arise.
Euphoria
As the opposite of panic, euphoria prevents us from making meaningful decisions by inspiring an empty sense of confidence and haughtiness in us. Traders need to be realistic and calm, and as such, euphoria has only harm in store for forex traders. Patience and logical behavior are the medicines against the effects of euphoric excesses.
Magical Thinking
Magical thinking is the tendency to ignore the role of causality in determining the meaning of our life experiences. In the context of trading, magical thinking defines our approaches to subjects such as luck, gambling. Luck or magic have no help to forex traders, and magical thinking will only help to remove the magic of forex in no time.
The best way of dealing with these feelings is establishing a routine and curbing your expectations from trading. If you don’t see forex as a get rich quick scheme, the anticipated risk and reward of trading are naturally smaller. Lower risk means lower emotional intensity. And the more relaxed you are, the greater your chances of success.
Only one more step and you’re ready: Choosing a Forex Broker