Even though most people think that Forex Trading success is based on how good your trading strategy is, the truth is that much more than that is involved. A trader’s mindset and ability to react to changes in the market with a more emotionally removed, rational decision making process, is just as important if not more of a factor in his or her success. The strategy can only be effective if under pressure, the trader does not react too emotionally to put it into practice.
Way too often, a successful, well planned, well tested trading strategy will be abandoned based on the adrenaline of the trader and the fear of losing. The psyche and the emotions of the trader come into play as early as when they decide to start trading. Many traders begin with unrealistic expectations and then make trading decisions based on those expectations, not on research and accurate information. Getting rich quick has a tremendous pull for many people. The idea that Forex Trading could bring a trader almost instant wealth is a great motivator but it is truly unrealistic.
There are some common psychological pitfalls that traders can fall into which can greatly impede their likelihood to succeed. If you are aware of these common obstacles to Forex success, perhaps you can try even harder to avoid them in your own trading behavior.
Fear of failure: The fear of failure can be crippling or can cause a trader to chase after a losing trade in hopes that it will turn around. When a trader accepts that losses are an important part of Forex success, and vows to learn from every loss, it is possible to overcome that fear. It is also, extremely important to never risk more than you can afford to lose because then the fear of loss becomes manageable. If you have risked more than you can afford to lose, the potential loss is a much more traumatic issue.
Greed: Hoping to get rich quick can cause you to risk sums that could be devastating if the trade does not go your way. In addition, learning to quit while you are ahead, is an important lesson that Forex traders can learn in order to manage their greed. When you believe that the market “owes” you and is going to make you rich, you are more likely to hold on to a winning trade too long, allowing for it to become a loss or a less winning trade. When you set a realistic goal and reach it, you can exit the trade profitably.
Euphoria: There is a definite adrenaline rush to winning. Human nature suggests that when you do something that feels that good, you should do it over and over again. The problem is that with Forex, like most other risks, you cannot guarantee the win, and as a result the euphoria that goes with it. When you do make a very successful trade, that high, euphoric feeling can cause you to rush back in, when really the best way to move forward is to take a step back and see what is happening and make a well thought out decision before you continue.
Making sure you are aware of the emotional aspect of Forex trading is the first step to incorporating it into a successful trading plan.