Thursday, October 9, 2008

Forex Trading Psychology

First fatal psychological mistake.

In such situation, most Forex traders seem fearless, not fearing making losses and only worry that others are making profit and worrying that they must enter or lose money. As new financial data is published, most Forex traders will rush to be first to enter the market. Following blindly is the most Forex traders' fatal psychological weakness.

There are many Forex traders who watch the Forex chart closely, and will enter a market when the chart show a steep movement. They don't even take time to understand what are the forces causing movement. It may be too late when they finally realize that it is a false alarm because they are already in the losing position.

When it comes to trading, one of the most neglected important subjects are those dealing with trading psychology. Most traders spend lots of time trying to find that perfect system. But having a good operating system is just a small part of the game. It is very important to have a system that well suits the trader, but it is as important as having a money management plan, or to understand all the psychology barriers that will affect the trading decisions. In order to succeed in this business, there must be an equalness between all important aspects of trading.

When you lose a trade, what is the first thought that pops up in your mind? It would probably be, "There must be something wrong with my system", or "I knew it, I shouldn't have taken this trade".

FOREX trading is pure volatility and 80% of all trades do not last more than 2-3 days. Most of them become daytrades. It is easy to accept that conditions can and will change in a heartbeat, rendering most trade plans obsolete.

One principle is about cutting your losses at an early stage. Some traders want to believe that their losses might do well after a lenghty waiting time. More than likely the market moves against these non-profitable positions and make them lose hundred of points. Even if they rise again they will be unprofitable. Do not be caught up in the thought that every trade should be profitable. If you can profit from half the number of your trades you are on the right track. If you would like to get even and profit if only half of your trades are winners is to allow your winners to run and to minimize your losses.

Another principle is playing smart by not letting your emotions rule in trading. Be objective with your decisions. While in the market,be sensitive enough to see the factors that may have influenced the changes that worked against the original analysis you had worked out.

Expect the unexpected,both good and bad. Understand these happings, be prepared, and take the appropriate actions. A good psychology plan takes into consideration that you can not predict what is going to happen in the market.

Unless you're trading in short positions, only increase your position when prices goes up, not down. Generally, when a price starts to move it usually continues in that direction for a while.

How to Handle a Losing Streak:
Plus, your trading account won't be drawn down so quickly.If you trade less you may discover why you are not successful. Follow those fewer trades more closely and document your success or failures more easily. If you are trading several currency markets and not having any success, cut back to trading one or two markets. Don't overtrade.

Research those programs and your money will probaly go further. There are many automatic Forex Trading Programs available.


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