When you are speaking about forex trading the first thing to consider would be about forex trading psychology. It may come across as weird to newbie traders when you start mentioning currency trading and psychology together.
Well, there is a deeper relation between these two than you could possibly ever imagine. Unless you recognize how profoundly your mind and emotions could influence your outcome in trading forex, you will not be able to chart a blueprint for real success in this trading arena.
Importance of Psychology in Trading Forex
You may have invested a lot of money, time and effort in gaining a lot of information and knowledge about trading currencies. But without the right frame of mind or right attitude towards trading, all your knowledge can quickly go to waste.
It is crucial to keep a check on your emotions for both freshers and experts in this field. It really does not matter how long you have been trading and how deep your expertise over methods and strategies of trading might be.
Your mind could influence all of these and then you could easily lose track and take important trading decisions based on your impulse and instinct.
Basics of Forex Trading Psychology
Though I could go on and on and write well over a few thousand words on the role that emotions play in jeopardizing your trading career, there are a few fundamental points that every trader worth his trade must pay attention to.
If you get these right, you can consider yourself to be better armed than your trading competitor who has not yet gained these insights yet, because you now have a cutting edge over him.
As I was saying, the basics or fundamentals are few and they can manipulate your entire trade. Here is the list for you:
- Psychology of winning trades
- Psychology of Loss
Can Winning at Trades Be Harmful Too?
Well, wins can never be harmful if they are actual wins. But the problem starts raising its ugly head when your wins turn out to be forerunners to your future losses. Let me tell you how.
Winning is a profoundly exhilarating experience and it would be a huge lie to claim that no emotions are involved here. Winning can release a flood of positive emotions and one of these emotions is confidence and hopefulness and the feeling that you can do anything and everything from that point onwards.
Yeah maybe you could but do you realize that entering a trade with this kind of buoyancy can blind you to any indicators / signals of a losing trade?
Losses Are After All Losses
Most people understand when it comes to losses because they know how a loss can stop them from taking any action. Well, losses like wins are temporary, but you must know how to limit your current loss from leading to future losses.
The most dangerous outcome of a losing trade is not loss of money but loss of confidence and peace of mind.
Fear could arise as an outcome of a losing trade or even because you are lacking in knowledge or confidence. People have a tendency to overthink, overanalyze and then end up creating a lot of fears and doubts in their minds in the process.
Fear to take action can nullify all your expertise and knowledge.
Greed could be your basic nature or even an outcome of your previous win or sometimes a losing trade as well. Some people react towards a win with greed to win more next time while others react in this way towards a loss.
Both situations are dangerous and can make you enter trades in non-feasible environment.