Trading Psychology – Get your head straight – Session Two
In session one, we discussed the importance of having a quiet working environment with as few as possible distractions, and at least two 15-inch or larger computer screens to help you assimilate all the information from your charting. And of course, to be up to speed when it comes to economic data releases and to understand how these might impact your trading. All of which are critical components of trading psychology.
OK, so you have planned your time, banished friends, family, kids, and other distractions from your work area. Now what? Well, another area where new Traders typically fall down he’s being unrealistic when it comes to trading losses — everybody loses trades at some point. But in forex trading, you really should be taking a long-term view. The best traders work to averages, they look for more wins than losses, and where any losses are contained by sensible stop losses, and where winning trades will typically run on for at least two times greater than any losses would be allowed to run for.
One of the biggest areas where new traders fall down is by not applying sensible stop losses, and then getting closed out by their broker due to a margin call. Or traders will simply throw the towel in when they have gone through the pain barrier, and then immediately double the size of subsequent trades in order to chase their losses in order to try and make money back. This is typically how gamblers operate, and of course, when it comes to gambling, the house generally always wins.
Some of the best traits of professional traders are the consistency of trading methodology while looking at the long game and not the short game, and being disciplined. When discipline fails – which is largely down to stress – then trading breaks down and fails too.
Another area where traders fail is due to greed, where they hang on to winning trades for too long, and try and squeeze every last pip out of their trade, which often leads to price action reversals and where trades move against them. This often results in traders going from a position of profit, to then running the position into negative territory, simply because they would not take a profit when they had it, because they wanted more. Professional traders know when to get out of a trade and do not let winning trades go into negative territory, even if they need to exit the trade with a small profit. They simply wait for the next trade setup up and go again.
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