A lot of psychology comes to bear when trading the forex market.
We go into GREAT detail of it here!
We go into GREAT detail of it here!
Forex trading is a mentally challenging venture. The fast-paced nature of the market does not give much room for error. There is a lot of pressure on the trader to deliver returns and not lose money.
A quiet market very quickly roars to life when there is sudden trigger, creating massive flow of orders as traders try to make profits, or to conserve capital if positions get into negative territory.
Nothing puts traders on an emotional edge than seeing his money disappearing in a bad trade.
With each tick into negative territory, panic, confusion, fear and all manner of negative emotions creep in.
When a trade is lost, a trader will spend a lot of time thinking of other things that could have been done with such money. Such are the emotional scenarios we see in forex.
A trader’s ability to hold it all together when there is widespread panic in the market or when trades are going bad is what easily makes the difference between an account living to see the next trading day, or receiving the much dreaded margin call from the broker.
How do emotions come about?
Emotions are a natural response to external stimuli.
In the forex market, most of that stimulus is visual.
When a trader takes a look at his charts (especially on his account balance), his eyes send the information to selected areas of the brain, where an interpretation of the information obtained visually is done.
Depending on the interpretation, the body now triggers release of hormones into the bloodstream so the body can handle the information.
One of the hormones released is adrenaline, which creates the emotional response of “fight, fright and flight”.
Individuals will respond to these stimuli in various ways, but eventually, this response can be modulated over time.
The Emotions at Play in Online Trading
Whenever a trader is on his platform, a variety of emotions are at work. Some of these emotions are:
1) Elation/excitement
2) Self-recrimination
3) Anxiety
4) Fear
5) Greed
6) Caution
7) Confidence
8) Panic
9) Joy
10) A feeling of accomplishment
At some point or the other in a trading career, these emotions will be experienced in varying degrees.
Newbie traders tend to experience these emotions a lot more than experienced traders, who have learnt to modulate their emotional responses to goings-on in the market.
How the trader handles his emotions will become a major deciding factor to his success or failure.
While it is good for a trader to assume a confident stand in trading when the ropes have been properly learnt, the other emotions do not augur well for a trader.
The ability to keep the negative emotions in check is the hallmark of traders who are disciplined and patient.
How can you develop the trading virtues of discipline and patience?
One way to go about it is to understand the market thoroughly.
Sometimes, negative emotions come to play when the trader fails to understand what is going on. This leads to a negative perception and therefore a negative emotion, which in turn leads to poor trading decisions.
When a trader is knowledgeable about the market, has a good trading strategy which he has tested and found to work, and places a trade correctly, he can afford to be patient without panicking because he knows that trades sometimes take some time to mature, and that sometimes the trade has to ride some market storms to get to the desired end point.
He will also be disciplined enough not to start deviating from his strategy.
Traders deviate from strategies by doing things like opening multiple positions, closing trades too early in fear, or doing something silly like just closing and opening positions to scalp pips without using any defined entry and exit strategies.
Disciplined traders do not do such things.
Maintaining a calm and disciplined disposition by not overtrading and trying to recoup a loss in a careless manner are hallmarks of trading psychology that traders need to adopt.
The formula is pretty simple.
Study the market.
Read materials from seasoned traders.
Get information from forex online forums.
Test, test and re-test strategies on demo, and stick to these strategies when trading.
Sticking to a strategy even when all hell breaks loose without yielding to negative emotions is discipline.
Sticking with the strategy to the very end, riding out the storms and drawdowns in between is patience.
Trading is like going to school.
When the correct methodology is learned, studied and engrained to memory, it becomes easier to avoid the negative emotions while adopting trading virtues like patience and discipline.
Even when a trader suffers a losing trade, the best attitude to this is to understand that every trader has suffered a loss at some point.
Even the great Warren Buffett lost several million dollars in October 2008 at the height of the global financial crisis.
He has of course, recouped those losses by being calm and rebuilding again. This should be the trader’s psychology.
When the trader understands that the forex market will be around till the end of time, and that there will always be clearer and better market opportunities, the trader will be able to recover from any shocks to his trading account.
The EFS is a 100% mechanical system with clear rules; if the set-up is right for you to open position, you will enter the trade.
If the set-up has no confirmation to trade, you will not enter the trade. Plain & simple.
It does not require you to watch your position, the trade hits the profit or loss automatically.
This is especially important.
There will be NO MORE fear or greed in your trading because the indicators clearly show you the entries and exits for you!
That means you just need to follow the indicator signals and shrug off the trading stress.
Again... all you have to do is follow the rules!
And when you know the "rules" -- You'll understand things in a new way. It's like putting on a pair of 3-D glasses... and seeing things in a COMPLETELY different way.
So go ahead, make that leap for total transformation & change your life TODAY:
