Mind Over Matter: Forex Trading Psychology

Whether you’re a veteran trader or learning how to start forex trading for the first time, having a thorough understanding of trading psychology is of vital importance to success on the trading market.

Before you begin to understand the logistics of currency trading, you must first understand the characteristics and skills required to profit in this prosperous yet tempramental trading market. That’s why, in today’s post, we’re taking a closer look at forex trading psychology, giving you insight into the inner workings of the mind of the profitable forex trader.

Composure is key

The fundamental psychological characteristic of any successful forex trader is composure.

Trading on a market that can be affected by a variety of external factors, ranging from geopolitical tensions to natural disasters, means sudden and unpredicted value fluctuations are not uncommon. Subsequently, neither are big wins and losses.

The ability to remain logical and composed in these situations and resist reactive decisions influenced by emotion is of the utmost importance. A bad day on the market, for example, could compel a novice learning how to trade forex to liquidate their holdings, refraining from risk and missing out on potential financial gains. Isolating yourself from emotion and remaining logical and strategic in your decision-making is therefore a fundamental principle of trading psychology.

Be wary of greed

To borrow an old trader’s saying, pigs get slaughtered. Greed never fares well in a trading environment, and abandoning reason in pursuit of profit can easily result in your market demise.

Again, this requires an innate ability to isolate your reasoning from emotion. A good day on the forex market can leave you feeling on top of the world, but straying from strategy in the excitement of a profitable day will lead to you crash back down to earth. The best forex traders therefore recognise an instinct as an emotional whim, understanding it should never guide an investment decision.

To really understand how to trade forex successfully, you must first develop an understanding of your own psychological impulses and reasoning, to make rationale judgments that will eventually lead to profit.

Be fluent in self-discipline

Because of the ‘open all hours’ aspect of the 24/5 forex market, self-discipline is a crucial element to positive trading psychology.

This can be executed through a variety of different practices. Having a strict strategy and trading rules based on a mature understanding of risk-reward is a controlled approach to forex trading which more impulsive traders should aspire to.

It’s not just your strategy that needs to be carefully monitored and controlled, though. Setting daily win/loss limits that, if surpassed, halt any further trading for the day is a smart way to minimise the temptation of impulses and retain financial control.

These tactics are still, ultimately, controlled by you – making the ability to remain self-disciplined in all aspects of the market absolutely vital.

If you think you have the psychological make-up of a successful forex trader, why not begin expanding your knowledge by attending one our free forex trading seminars? Sign up here.