Forex Education Forex Psychology

Beliefs That Can Limit Our Forex Profits

In this article, I will try to expound on “Limiting Beliefs”: what they are, why they appear, and how they affect us in Trading.

What are limiting beliefs?

Limiting beliefs are norms that we absorb in our childhood, for example through the education of our parents, the media, school, etc. We simply believe what we are told and our subconscious assumes it as something real, And even more so, those beliefs are deep inside of us that we don’t even question. These beliefs are to blame for our failure to achieve our goals and live our values.

For example, some typical limiting beliefs:

  • I have to work hard to make money
  • The safest thing is to be a civil servant
  • Success takes time
  • It costs a lot to make money
  • It is better to buy flat than to rent
  • If someone offers me something sure that they want to cheat me

And if you focus on trading, a lot of those limiting beliefs come to mind:

  • Only 5% of investors are successful
  • It takes a lot of capital to make money
  • It is not possible to live off the markets
  • Strong hands control the markets
  • I have to ruin myself several times before being profitable

I’m sure you know a lot more.

Everyone’s beliefs form their own reality, and until you disassociate yourself from your limiting beliefs associated with trading, you can never succeed in trading.

A clear example of the negative power of these beliefs is found in athletics. In 1954, athlete Roger Bannister ran the mile below four minutes. Until then, it was assumed that it was physically impossible to do so. The breaking of that record, and of that limiting belief, made a year later 37 runners fall out of the four minutes, and two years later more than 300 runners got it.

When I read in blogs or forums, I notice that there is a very negative feeling regarding the Market. I do not stop reading post always asking the same or even reaffirming negatively the impossibility of being profitable:

  • Can you beat the market?
  • Who really wins in the markets?
  • How to invest and not die trying

Unconsciously, many people are taking these beliefs that they read as reality, they are creating their own limiting beliefs. Unfortunately, there are few comments positively reinforcing this issue, and if someone appears saying that it is profitable, usually instead of learning from it what is done is to criticize it (very common in the Spanish-speaking world).

But how do we eliminate those beliefs?

There is a work process called PCM, which are the initials of:

  • Possibility: achieving any goal is possible
  • Capacity: we are able to achieve this goal
  • Merit: we deserve to achieve that goal

Therefore, let’s assume that our goal is to achieve 50% profitability every year (some right now will be saying: only!! if I already win 100%; and others will be thinking: that’s impossible. well, guess who has the limiting problem).

The next step is to take a walk through the three pillars (Possibility, Ability, and Merit) and ask questions, so we have to find the limiting beliefs that prevent us from developing that goal. For example, one may think that it is not possible, or that it does not deserve it, but why? Perhaps because he believes he does not have the necessary resources (capital, training) or does not have the necessary skills, or because speculating is frowned upon by his family, etc. We have to ask ourselves until we find the root of the problem and discover what are the beliefs that limit us to continue growing.

And the next step is to change those beliefs. We have to turn them around and put them in our subconscious until they are part of us and our reality. This process of change may be more or less long depending on the person, their faith, but it is key to establishing new beliefs that will help us achieve our goals. To really see it first we have to think about it and believe it.

There’s a saying from Henry Ford that says, “Whether you think you can, or you think you can’t, you’re right.” So it’s up to you.

Forex Education Forex Psychology

Alexander Elder and the Psychology of Markets

With the suggestive quote below, Alexander Elder begins his masterpiece, Trading for a Living. Elder, who studied psychiatry in the former Soviet Union, enlisted in a ship from which he fled risking his life and after being chased by his own companions arrived in New York in 1974, with 25 dollars in his pocket and no one to ask for help. He currently presides over Financial Trading Inc., a company mainly dedicated to providing training and is widely known for its contribution to the psychology of trading.

“You can be free. You can live and work anywhere in the world. You can be independent from routine and not answer to anybody.”

In this article, we will review the main concepts of this work, which deals with a fundamental aspect, forgotten by many, which is the control of emotions, for many authors this constitutes more than 50% of our success as traders, to which we would add in second place the monetary management (money management) and in the last place we would have our trading system that contributes in a ridiculous 5%-10% to our result curve. If we devote a few minutes to these percentages we will realize that our scale of values was the opposite when we began to take an interest in the stock market.

Success in trading is achieved by understanding that control of emotions is the fundamental part of our operation, the lack of this control is what separates 95% of participants from their money. The trading industry knows this and carries out continuous advertising campaigns to attract new customers by promising a Holy Grail that never arrives and will never arrive if we look for it outside ourselves. A constant source of new entrants is needed to feed brokers, dealers, and the small percentage of traders who consistently make money.

The Amateur trader is attracted to the market by a powerful advertising machine that tries to convince him that this is a zero-sum game, all you have to do is be smarter than the rest of the participants to win large sums of money. The reality is quite different, it is not a game of Zero Sum, but a game of Negative Sum, the trader must fight, not only against the other participants but against the commissions and the slippage, that globally constitute huge amounts of money that is constantly drained by brokers and dealers.

They also convey to us the idea that sliding or slippage costs are necessary, they are the price we must pay to enter and exit the market, is the cost of liquidity. The reality is that every operation we do will be like a bite to our income statement so we must avoid markets with little liquidity and order it for the best, as well as operate with a methodology that performs an excessive number of operations.

Year after year, a large number of people approach the financial markets in order to achieve financial independence, most people with a low profile of risk aversion. Without a doubt, the first attraction that one has towards trading comes for money, however that is not the goal, in the words of Elder: “The goal is not making money, paradoxically, but to trade well”. We must worry about doing good operations and forget about the money that is at stake, only in this way can we make money consistently. By the time we let emotions take over, we’ll have lost the game.

Novice traders and those who want to enter this field often ask how much money can be earned annually, trading in the market, looking for a figure that serves as a reference, a magic figure on which to base the decision to leave a monotonous job and achieve financial independence. This is not, however, the right question, what we should ask ourselves is: How much money am I going to lose until I learn to trade and create a long-term winning trading strategy?

Planning and discipline play a crucial role, we must know at all times what our plan is and follow it to the letter, for this purpose it is advisable to take all the operations in a spreadsheet and write a diary with our operations, in the words of Elder:

“Plan your trade and trade your plan.”

This is a phrase that contains much more content than we see at first glance and that most new traders skip. In our trading journal, we must reflect the trades in as much detail as possible, which will separate us from the casino player and lead us to structure our mind and continuous improvement of our trading system. It is of course easier to write down the days when we have earned money and feel euphoric, we must be disciplined and write down every day we have operated, whether positive or negative. We must have a long-term mentality in our operation, if we are to start operating in the market we must mark a long period of survival in the market.

According to an old adage from Wall Street, “Bears make money, Bulls make money, and pigs are slaughtered”. Having added the sheep to this group, we can already classify all market participants. The price that every action, future, commodities, etc, shows us at every moment is nothing more than a psychological effect of all traders participating in a market. Every day a battle is established between Bulls and Bears. The bulls are those who think that the market will rise, the bears, on the contrary, think that it will go down, the pigs are dragged by greed and have no clear stance to take, while sheep are moved by fear of taking positions in the market and are highly influenced by other participants, analysts, and gurus. Pigs and sheep will always lose money.

According to Alexander Elder the market is a huge mass of traders, in which everyone tries to take the money from others by being smarter. In addition to this fight, traders have to face commissions and slippage, so by opening a position we are already losing money. Independent traders trade for both irrational and rational reasons, the rational reasons are the search for a net return to our capital, while the irrational ones are gambling and the search for strong emotions, We must fight to control our irrational side, which will drive us to operate excessively.

“Remember your goal is to trade well, not to trade often.”

Faced with all these obstacles the trader who works for a firm has the great psychological advantage of not risking his money, besides the discipline is imposed on him by his superiors, but respect can be left without work. Another proof that trading is pure psychology is in the numerous examples of traders who have left their companies to devote themselves independently and due to greed, fear, panic, and euphoria, Their performance has been lower than that obtained as salaried traders.

We can’t control the market, the only thing we can control is our emotions when we open up a position. Being in the market completely changes us and we stop being guided by our system and start to be guided by the movement of the mass. Mass psychology has a great application in the world of financial markets. From the tulip-mania, the South Sea Company to the technology bubble, these phenomena are explained by greed and fear of the masses.

There are two books on mass psychology that are a necessary reference for the explanation of this type of phenomenon of collective madness, Charles Mackay with his work, “Extraordinary Popular Delusions and the Madness of Crowds” and the book by the French philosopher Gustav LeBon “The Crowd”. According to mass psychology, people change completely by getting into the crowd, we are more gullible, more anxious, we strive to look for the leader and we react to emotions instead of reasoning our decisions. Mass behavior will always be more primitive than individual behavior. In the words of Charles Mackay: ‘Men go mad in crowds and they come back to their senses, slowly, and one by one, reflect on this phrase as you think about what happened during the recent technology bubble.

Like the allegory of the sirens’ songs, which captivated the sailors with a song so beautiful that it forced them to jump into the water where they died drowning, In the market, there are also siren songs that will make us follow the mass in our investment decisions. To avoid certain death the sailors tied themselves to the ship’s mast and applied wax to their ears. If on the market we hear siren songs, let us stick to our trading system and our money management rules and thus avoid indications coming from abroad and focus on our way of trading, although this is easier said than done, We’ll get him on discipline.

We must be skeptical of all information coming from outside. As we begin to operate our first objective will be to preserve capital and the second its increase. This order of priorities is reversed in most cases and we skip the first phase, when we start in the markets greed and fear dominate our behavior. If we take as a reference a daily bar chart, we could state that the opening price is marked by amateurs and the closing price by professionals. In markets like the American, it is recommended to avoid the first hour of negotiation since false movements abound and are considered as the time of the novices. Statistical studies show that the best results are obtained by avoiding this first hour of negotiation.

The trader’s work is based on looking for trends and areas of congestion, being the second much more abundant than the first, if we observe a chart the task seems easy. Experts and gurus show us graphs and tell us where we should have entered and left the market as if this was a simple task. The problem is that your broker will not let you place the order in the middle of a chart, it will always require you to do it in the closest part to the right margin, in the most current part. This brings us to a world in which we must make our decisions based on probabilities in an atmosphere of uncertainty. Most people do not accept uncertainty, as they have a strong emotional need to be right in their decisions, keeping the losing positions in the hope that the market will turn around and give us a reason and selling the winning positions prematurely to feed our ego. Wanting to be right in the market can be very expensive.

Trading is a very exciting activity and this leads novice traders to feel euphoric, for an amateur trader being in the market is like a ticket to the cinema or a football game, However, trading is a much more expensive entertainment than film or football and no one can feel euphoria in the market and earn money at the same time, “Emotional trading is the enemy of success”. We should not feel emotions about the results of our operations. We must concentrate on doing good operations and improving our skills day by day and not on the money we are earning or losing.

If we seek financial independence as traders, we must consider trading as a profession. Just like a good doctor or a good lawyer, we must devote many years of preparation or perhaps think that we can practice law, or medicine with 3 or 4 magical systems and two courses on how to operate in the market. Another common mistake is to count the money we are earning or losing while we are in the market, a good professional in any other profession would never do it. The goal of the trader is to make good trades and the money must be in the background, if we make good trades the money will come without us realizing it. We can count the money when we have closed the position, at the time of registering it in our trading journal.

I hope that this brief review of Elder’s work will help you to know better the market and especially to know yourself better, the emotional component of the stock market operation is very important and we must dedicate time if we want to belong to the select club of 5%. Although the author considers money management fundamental, it is a book of psychology and this topic only gives two tips, the rule of 2% risk per position and a maximum 6% monthly loss.

Forex Education Forex Psychology

How to Neutralize Emotions When Trading

In this article, I will try to teach you to neutralize the emotions you may feel during the usual operation. Imagine, for example, that suddenly fear induces you to reverse an operation leading to a pullback, or have greedy thoughts that lead you to assume too much risk while operating; well, there are ways to neutralize sensations and thoughts, in such a way that these do not eliminate the best from you as a trader. So they can’t get the best of you. But you must always keep in mind that there are many occasions to respect fear and use it to be cautious, and there are others to push past it.

First, we must use a trigger-type strategy (trigger) which works when greed makes us risk more than we should. It’s basically a self-regulation strategy to alter the state of mind. The trigger-type strategy is so-called because it sets a positive action that counteracts a negative emotion. When you use a trigger, you are actually using an association between body and mind to get out of one state and into another.

Suppose you’re afraid to open an operation. You want to get over it. To do this we can create a trigger that reminds you of a thought that neutralizes the fear you feel when you press the send key or when you pick up the phone to give an order. The trigger may be to look at an object in the room, hear a sound, or touch something. Sight and touch are often the best triggers for many people, as they are the most powerful primary sensory channels.

For example, the windows in my office overlook a landscaped area with trees. When I look out the window and stop looking at the monitor, I associate this image with peace and quiet. The market goes up and down but the garden is always still, static before news or market turns. The garden helps me to stay stable, making me less susceptible to the emotions that can come into action in the face of the movements that occur on the screen.

In this case, we would have two triggers: the visual stimulus of looking at the garden and the slight movement of my chair to see it. The visual and kinesthetic triggers (the physical movement of my body and turning my head to the left) take me away from any fear or anxiety, something calm, stable, and balancing. My change of orientation towards the garden barely allows me to remember what is happening in the market.

The point is that a trigger becomes strongly associated with a specific mind shift, and the trigger invocation triggers the desired change. While the trigger does not induce me to get up periodically and go out into the garden, remaining totally absent from the market or anything else, it allows me to have a moment of visual refreshment and mint. In general, it is easier to trigger with a real-world stimulus, but it is not necessary. You can use a mental image as a trigger.

The trigger can be as simple as attaching your thumb to your index finger, which can trigger the internal search for a relaxing image that immediately neutralizes any thought of fear or greed. Choose a trigger that is simple for you and associate it with an image that neutralizes those thoughts. As time passes and you do it more and more times, you should notice that the association between your trigger and thought or mental image becomes stronger and stronger.

Some mental images that are effective in neutralizing negative thoughts are, for example, scenes of quiet places you have visited (a coast, mountains, a valley). Any relaxing image will do the job, but experience different images, because the stronger your attachment to the image, the more effective it will be.

The reason why triggers work is that you are building a mind-body connection between your trigger and thought or image. It is very true that it is always possible to move from a negative to a positive attitude without a trigger, using this tool the change occurs in a faster and more intense way.

For those who wish to expand on the use of the mind-body connection applied to the neutralization of negative thoughts and emotions, there are quite a few books on the subject, all of them authors enrolled in the therapeutic school known as neuro-linguistic programming. These techniques have been applied since the mid-1970s in psychotherapy, marketing, communication, education, sports, and trading.

Forex Forex Psychology

What You MUST Know About Psychology In the Financial Markets

It’s cloudy. Every minute, the number of clouds doubles, and in 100 minutes the sky will be covered. How many minutes will it take the clouds to occupy half the sky? 50 minutes. It is the answer that is usually heard in this version of the riddle. However, if the clouds double every minute, when they cover the whole sky it means that the minute before they cover just half. So the correct answer is 99 minutes.

Fast and Slow Thinking

It wasn’t a complicated riddle. But to solve it you had to think slowly. In his excellent fast-thinking, slow thinking, D. Kahneman, father of behavioral finance, described the two ways we process information:

A quick, emotional and intuitive one. It gets stuck before problems that require evaluation and logic. Professionally known as System 1, colloquially Homer.

A slow and rational, requiring higher energy expenditure. Known as System 2 or Mr. Spock for friends.

We are Homer by default. It is enough for the day-to-day. With Spock in charge, it would take hours to solve simple operations, like buying food or choosing the color of the tie.

System 1 is efficient and consumes less energy. In return, it takes a series of shortcuts that cause mental traps. For example, how many times do you think you could fold a sheet of paper? It seems a simple task, but I bet with you you wouldn’t be able to do it more than 12 times. Just take the test.

In fact, it was thought impossible to fold a sheet more than 8 times until in January 2002, B. Gallivan explained how to get there at 12 in his book How to Fold a Paper in Half Twelve Times. You read it right: a book.

Incredible, isn’t it? If it wasn’t for the fact that mathematics assures you that it is, you wouldn’t believe it. It’s not something you can imagine: you have to do an exercise in faith in science.

We Are Fooled

Imagine that we found a way to bend it more than 12 times. For example, 20. What will be thicker: the pipe of a pipeline or our sheet?

A folio is about 0.1 mm thick. If we fold it in half, we will have 0.2 mm. We fold again and have 0.4 mm. At the seventh, the thickness will be similar to that of a notebook. Around 23 times we will reach 1 Km. In 42, our folded folio would reach the moon, in 52 to the sun. 86 folds later, it will be the size of the milky way and 103 folds the size of the universe. Math, son.

We can’t imagine it. Mathematics claims it’s true, but the mind resists it. Only with experience, knowledge, and the right tools will we know when System 2 needs to be implemented to reach successful conclusions.

Credit: Real Investment Advice

Confused by the Randomness

You will agree with me that any good operation is one that you would repeat time and again provided that certain conditions are met, regardless of the outcome of a particular trade. This statement implies that any operation, despite being perfectly planned, can end badly. That is to say, investment in financial markets requires us to face important doses of randomness.

And the bad news is that the deceptions of System 1 are multiplying in activities whose results are influenced by probability. Actually, Homer thinks he can influence her.

A few years ago, a BBC reporter showed that at many Manhattan traffic lights there is no connection between pressing the “green wait” button and the time it takes for the record to change color. Corroborated by the New York Times, it was noted that it occurred in other cities (e.g., London). As pedestrians feel they can control the situation, they tend to cross less in red.

This trap is known as the “illusion of control”: we believe we can influence things over which we have no power. For example, when we blow into the fist or shake the dice vigorously before throwing them. Or when we attribute to our superior analysis the winning operations and to the unlucky losers (something that also fits with another mental trap known as “attribution bias”).

In this sense, a 2003 study by Fenton-O’Creevy et al showed that traders more prone to the illusion of control had lower performance, worse analysis, and worse risk management.

Correlation, Causality, and Chance

This need for control leads us to look for cause-effect relationships to explain random phenomena. Unfortunately, Homer is not a scientist identifying patterns and there are few sites like financial markets to find ridiculous patterns. Thus, there are hundreds of published books that are authentic compendiums of false correlations.

It is important to understand that correlation does not imply causality and that it is not enough that a system has worked in order to extrapolate it to the future. The system, besides being useful, must make sense.

Chalmers, inspired by B. Russell, explained it well in his inductive turkey story. A turkey, from its first morning, received food at 9 o’clock. As it was a scientific turkey, he decided not to assume that this would always happen and waited for years until he collected enough observations. Thus, he recorded days of cold and heat, with rain and with the sun, until finally, he felt sure to infer that every day he would eat at 9 o’clock. And then, Christmas Eve arrived, and it was he who became the meal.

In 1956, Neyman (later corroborated by Hofer, Przyrembel, and Verleger in 2004) showed that there is a significant correlation between the increase in the stork population in a given area and the birth rate in that area. Cause?

Depends on the Question

Most of the decisions we make are often influenced by how we are presented with information, or how the question is asked. For example, we will be more willing to sell a share priced at EUR 50 if we buy it for EUR 40. However, if the previous day’s closure was EUR 60, we will be more reluctant to do so.

Imagine you have to choose between these options:

800 USD with security.

Do not lose anything with 50% probability or -1,600 USD with 50% probability.

Although the expected value is the same (0.5 x -1,600 + 0.5 x 0 = -800 USD), the second option is usually chosen.

Let’s put it another way:

+800 USD with security.

Do not earn anything with 50% probability or +1,600 USD with 50% probability.

Many people will now choose the first option. By showing the same exercise as a gain rather than a loss, the mental process leads to different paths.

Aversion to the Loss

The above example also demonstrates the “loss aversion bias”. We are more pained by a loss than by a gain of the same magnitude. This is one of the causes of the well-known “disposition effect”: the tendency to close profits ahead of time and let losses run away.

We cannot avoid the Disposition Effect. In fact, it is rooted in our primate nature, as demonstrated by K. Chen and L. Santos of Yale University, studying a group of capuchin monkeys.

These monkeys had been educated to exchange small coins for fruits. When they “bought” a grape, one of the researchers would throw the coin in the air, and if it came out face up he would give it two grapes, if it was a cross, then only one. Another researcher, when given the coin, showed two grapes. Then he threw the coin in the air, and if it came out expensive, he gave both grapes, and if it came out, he gave one and kept the other.

On average, they received the same number of grapes with both researchers, but one showed them as a potential gain and another as a potential loss. Soon, the monkeys began to exchange only with the investigator who did not show the two grapes. The suffering of losing a grape was greater than the satisfaction of winning it.

We can’t help it. But L. Feng and M. Seaholes showed in a 2005 study how the experience allowed for significant attenuation.

Aversion to the Losses

Perhaps because we do not know how to decide in an environment of uncertainty, we do not know how to evaluate the decisions made by others. In a 1988 study, J. Baron and J. Hershey asked a subject to choose from:

  • Get 200 USD for sure.
  • Get 300 USD with 80% probability or 0 USD with 20% probability.

A priori, the most logical thing is to take risks since its expected value is 240 USD (300 x 80% + 0 x 20%), higher than 200 USD insurance. But what was sought was not to evaluate the wisdom of the one who chose, but how others valued the choice. Therefore, once the result was known, different people were asked what they thought about the decision taken, being -30 the worst and +30 the best.

The valuation was +7.5 when the subject took risks and won and -6.5 when he lost. This implies that the subject is valued not for making the most logical decision, but for its result.

External Influences

When we make decisions, we are also influenced by what others think, by what others expect of us, and even by what others order.

Asch showed the difficulties of going against the tide. In his classic study, he showed tokens with three lines of different sizes to groups of students. They were all in cahoots except one, the subject of the study. It was asked to select the largest line. The accomplices had to say sometimes right and sometimes wrong answers. When they said the right answer, the subjects did not usually fail. But when the group gave the wrong answer, the subjects failed almost 40% of the time, even though the lines were several centimeters apart.

Stanford’s terrible prison experiment shows the influence of what others expect of us. A group of young people were selected and randomly divided between prisoners and prison guards. Prisoners were required to wear robes and were designated by numbers, not by name. The only rule of the guards is that they could not use physical violence.

On the second day, the experiment went completely out of control. The prisoners received and accepted humiliating treatment at the hands of the guards.

Even more terrible is the study of Stanley Milgram, from Yale University. This experiment used three people: a researcher, a teacher (the subject), and a student (an accomplice actor). The researcher points out to the teacher that he must ask the student questions and punish with a painful punishment every time he fails. Initially, the discharge is 15 volts and increases for each failure for several levels up to 450 volts.

The student, as the downloads rise level simulates gestures and cries of pain. From 300 volts it stops responding and simulates seizures.

Normally starting at 75 volts, teachers would get nervous and ask to stop the experiment. If this happened, the investigator refused up to four times, noting:

  • Go on, if you please.
  • The experiment requires you to continue.
  • It is absolutely essential that you continue.
  • You have no choice. You must continue.
  • On the fifth attempt, the experiment stopped. Otherwise, it continued.

All subjects asked at some point to stop the study, but none passed five attempts before the 300 volts. 65% of the participants, although uncomfortable, reached up to 450 volts.

If you think that you would never fall for something like this, keep in mind that both studies have been repeated at different times with different modifications, reaching similar results.

What Can We Do?

Now you know. Your mind deceives you and conspires against you. You can’t help it, but you can avoid falling into its traps if you understand how you are deceived. There are hundreds of resources (books, articles, etc). Use them. And remember: to be brave it is indispensable to be afraid.

Forex Basics Forex Psychology

Weird Hobbies That’ll Make You Better at Forex

There are things that we do in our everyday lives that can actually make us better at trading. Some of them may be related, while others will have absolutely nothing to do with trading at all. Our hobbies can have the same effects, there are hobbies out there that people do that will give you the skills that you need to be a fantastic trader, in fact, they will improve aspects of your trading. We are going to be looking at some of the hobbies that people do that help to build our trading skills or develop certain aspects of us that would be beneficial to our forex trading.


This one may seem quite obvious and to be fair, it is. If you like reading then you will love Forex and trading, as there is a lot of reading to be done. Any people get bored when reading and learning, this is why there are so many video tutorials out there now, but if you actually enjoy it then you will be in a good position as there is so much information available for you to take in. There are also trading-related books out there that can be filled with relevant information and so reading those in your spare time can give you some fantastic insight into different techniques or give you ideas that you can implement into your trading. If you are not a fan of reading, there are alternatives out there, but you will find far more information in the written format than any other format when it comes to trading.

Jigsaw Puzzles

Trading can be compared to puzzles in a number of ways, the most obvious reason is the fact that when you are putting a puzzle together, you are taking lots of small things in order to make a larger overall picture. We do the exact same thing when we are trading, we are taking small bits of information from various analyses or indicators and putting it all together to give us an overall picture of what the markets may do and what we should trade. Doing puzzles helps you to take your time, to analyze each piece of information, and to have patience, afterall, some puzzles can take a long time to complete.

Playing Sports

Sport doesn’t seem like it would give you skills needed for trading, but it does. Well not exactly with your trading, but it is a fantastic way to get rid of some of the stress that can build up when trading. In fact, it gives you the perfect outlet to let off some of that steam. For anyone that sits in front of the computer for the majority of their day, it can damage your posture, can stress you out, and can ultimately make you a little bit fatter. Playing sports is a way of rectifying all three of those things. It helps you keep a good posture, it helps you to relieve stress and it can make you that little bit fitter. So even if this is not one of your current hobbies, try making it one once you start trading, especially if you are doing it full time.

Playing An Instrument

If You have learned to play an instrument in the past then you probably have a number of skills that are very desirable for a forex trader, these include things like consistent learning, patience, and being precise in your learning and implementation. It takes a lot of time and a lot of patience to learn an instrument, much in the same way that it takes time and patience to learn to trade properly. Music can also help to influence your mood or to calm you, something that is vital when it comes to trading. There are no shortcuts when it comes to trading, so being able to bring in the characteristics that were required to learn to play that instrument can be extremely beneficial to you as a forex trader.


While we don’t do much writing when it comes to trading forex apart from the little notes that we jot down in our trading journal, writing does give us a few skills that we can bring across. Firstly it teaches us to be a little more analytical, looking at what we have written in order to find and rectify any mistakes in the spelling or grammar. It also helps us to research, research is an important part of both writing and trading, so being able to do it when you are writing something means that it will be slightly easier for you to analyze different information sources when it comes to your trading.


There are a lot of things out there that you can collect, stamps, pokemon cards, marvel figurines, whatever it is, it will teach you one main skill. That skill is patience, you need to be patient when collecting, finding the right item for the right place, and not jumping in too quickly and ending up out of pocket. This same skill needs to be used when trading, you don’t want to jump into a trade too early and at the wrong place, if you do that too much then you will be making losses, so patience is vital if you are looking to become a successful trader.

Buying and Selling

Some people just love to sell things, and this helps you to understand the value of exchanging one item for money or money for items. This is exactly how trading forex works. We are exchanging one asset for another. Getting an understanding of how this works beforehand and what to look for when it comes to price fluctuations can help you out as a trader. If you do this, you are basically trading already, just in a more physical form rather than online as a retail trader.

The thing with hobbies is that it really doesn’t matter what it is, a hobby is something that you enjoy, this is a great way of destressing yourself. If you have a hobby, do not give it up just because trading is taking up a lot of your time, make time for it, not only will it help your mental health, but it will also help you to develop certain skills that can come in handy when trading, no matter the hobby that you are doing, it will have some form of benefit to your overall trading ability.

Forex Psychology

Maybe Emotions are Actually Good for Forex Trading?

In the last 20 years, advances in brain imaging technology and other methods of analysis of neurological activity have produced important advances that allow us to better understand the complex functioning and biology of the human brain. This discipline, neuroscience, is closely related to neuroeconomics, which in the last decade has combined knowledge of the brain with biology, physiology, psychology, behavioral finance, and economic theory to improve understanding of decision-making in competitive market environments, where risks and benefits are taken.

For Colin Camerer, Professor of Behavioral Economics and Finance at the California Institute of Technology, neuroeconomics involves opening the “black box” of the brain to inform economic theory and, potentially, for a better understanding to mitigate risky behaviors such as rogue traders. Denise Shull, president and founder of ReThink Group, a New York-based firm that advises professional traders, defines it as the study of “what happens in the brain when we face risk and other decisions that are made under conditions of uncertainty.

When using brain imaging, neuroeconomics also measures heart rate, blood pressure, and facial expressions to evaluate physiological reactions. And it uses games-like tests and experiments to study decision-making, make inferences about how the brain works, and build predictive models about human behavior. These efforts are aimed at advancing and enriching our thinking about economic theory, financial decision-making, or public policy decisions.

Science has advanced in parallel with recent studies of bubbles and crises and how decision-making and risk-taking, at the micro and macro levels, contribute to these events. Andrew Lo, professor of finance and director of the Financial Engineering Laboratory at MIT’s Sloan School of Management, has focused on this area of study. Collaborating with Dmitry Repin of Boston University, Lo has conducted neuroscientific tests on professional traders, looking at how the complex interaction of rational thinking, emotions, and stress can affect risk-taking and the profitability of investments. In his 2011 article, Fear, Greed and Financial Crises: A Cognitive Neurosciences Perspective “by investigating the neuroscientific bases of knowledge and behavior we can identify keys to financial crises and improve our models and methods of dealing with them”.

And watch out because this doesn’t just stay in the financial markets but goes further: President Obama has invested $100 million last year in the Brain Research through Advancing Innovative Neurotechnologies (BRAIN) project, in order to create a map of the brain.

Brain Photos

Functional magnetic resonance imaging (fMRI) is the fundamental tool that has allowed a great boost to neuroscience in the last two decades, making it possible to obtain more information about the experiments performed.

With fMRI, scientists are able to scan brains “in action” in a safe, non-invasive way. They are able to obtain empirical data on which specific parts of the brain are active during a given activity. Though there’s still a long way to go in terms of image quality and accuracy, the technology has produced amazing images and scientific findings.

Coates’ case is striking: he currently works as a researcher at the University of Cambridge but is a former operator of the derivative tables of Goldman Sachs and Deutsche Bank so he knows both worlds well. According to Coates, the way risk is assessed has changed in the last 20 years. Thus, in the nineties “the head of the trading table asked what your position was and how you felt about it, so you could decide if a trader could handle a certain position”. But over time, Coates points out, “this approach was replaced by statistical indicators and risk managers who carried out stress tests and made instantaneous assessments of risk levels.”

However, this change has not allowed us to detect “hidden changes” – those moments that Coates calls “the time between the dog and the wolf” – when people become very risky or very averse to the risk of the normal. Coates says statistical-based methods, which do not take into account biology or neuroscience, are not able to capture the behavioral changes in traders.

In any case, what Coates’ book highlights are that neuroscience and physiology have shown that financial decision-making is not a purely cognitive activity, but that physical components also intervene. Human beings do not manage information without passion, we are not computers; on the contrary, we react to information physically, our bodies and brains move in tune.

Research also shows that much thought is normally carried out automatically and involuntarily, in contrast to controlled thinking that is voluntary, conscious, and open to introspection. Daniel Kahneman himself, a psychologist who won the 2002 Nobel Prize in economics, referred to these modes in 2011 in the title of his book Thinking Fast and Slow, that is, what some authors describe as cold and hot decision-making.

Hot decisions include hunches, instinct, or intuition, which are a way for the body to record critical information that has been received. They hardly affect consciousness, but they are essential to rational choice. Some scientists question the reliability of intuition but experts in neuroscience consider intuition a form of pattern recognition that can help traders identify patterns in complex markets and create algorithms for the exploitation of these patterns. In Coates’ words, “the common sense of a winning trader may be due in part to his ability to produce body signals and listen to them”.

Coates has also deepened the impact of natural hormones on economic agents and markets and in particular the “winning effect” on male traders. The biological evaluation of groups of traders in the City has led him to the conclusion that testosterone and cortisol are chemical messengers that point out risks and economic rewards.

Moderate testosterone levels, says Coates, prepare male traders to take moderate risks, but higher levels occur when traders make winning trades and continue to win. The resulting hormonal imbalance can lead to excessive risk-taking (i.e., the winning effect). What’s more, Coates points out that during bullish markets testosterone is likely to increase, causing risk levels to rise altogether which in turn exaggerates the rally. In contrast, cortisol, a hormone associated with stress and anxiety, can rise during a stock market crack, so traders become irrationally risk-averse. Finally, Coates takes his theory to the extreme: “episodes of irrational exuberance and pessimism that destabilize financial markets can be caused simply by hormones.”

Evidence of the Emotional Component

Another point of view is that of Denise Shull of ReThink Group. This specialist in trader psychology and experienced futures trader claims that much of what we know and have been taught about rational vs. emotional thinking is wrong. Neuroscience has shown that we perceive, judge, and decide in a totally opposite way to that proposed by the prevailing theories in the field of psychology and economics, in which above all the benefits of rational thought stand out.

In particular, Shull cites a 1992 study by Antonio Damasio and Antoine Bechara, professors of neurology and cognitive neuroscience at the College of Medicine at the University of Iowa and creators of the Iowa Gambling Task, a simulator that attempts to represent the decision-making process in real life. In this study, the patients who participated had suffered damage to the orbitofrontal cortex section of the brain, which had been confirmed by fMRI. By studying patients, they found that this area is part of a broader neural system involved in decision-making. Although these patients retained their cognitive abilities despite brain damage, they also showed a dramatic loss of emotional feeling, having begun to make destructive and wrong decisions for their lives.

One patient, for example, had lost all sense of proportion, spending hours obsessed with trivial details and ignoring more important matters. These data led to the conclusion that emotion or feeling is an integral component of the machinery of reason. Another interesting study cited by Shull is the 2007 study by Myeong-Gu Seo of the Robert Smith College of Business at the University of Maryland and Lisa Feldman Barrett of Northeastern University, on the impact of emotions on the decision-making process of buying shares. They selected 101 investors to record their feelings while making investment decisions every day for 20 consecutive business days.

Seo and Barrett found that individuals who experienced more intense feelings during operations made better decisions and made more money, just the opposite of what one would expect! The purpose of the study is that the common prescription of “ignoring your emotions” seems to be wrong for an effective regulation of feelings and their influence on decision-making. Rather, it seems to be the opposite: that people who are in the best position to identify and distinguish their feelings can better control the biases induced by those feelings and, as a result, achieve better trading results.

So, according to Shull, “in risk management what we’re trying to do is extract emotion and come up with a mathematical model, but neuroscience research shows that that takes us the wrong way. ” Moreover, in his paper The Art of Algorithmic War, Shull states that “after most of the non-scientific debate about feelings and emotions there lies the assumption that a feeling or emotion automatically becomes an action. This is simply false… In their purest form, feelings and emotions are designed to give us information. Without realizing it, Wall Street adds emotional information to analysis reports”.

The Biological Factor

Another author who has much to say in this field is Peter Bossaerts of the Caltech Laboratory for Experimental Finance. Bossaerts has applied neuroscience methods to a variety of risk-related topics, including how individuals process risk in a given situation and make risk-related mistakes.

In the tests conducted by Kerstin Preuschoff, a researcher at the Laboratory of Computational Neuroscience at the Swiss Federal Institute of Technology in Lausanne, and Steven Quartz, professor of philosophy and researcher of neuroscience at Caltech, subjects participating in the study were asked to play cards while observing the brain areas activated during risk management using fMRI. The collected data suggest that the anterior insula section of the brain, considered the seat of feelings and emotional awareness, transmits this information in a fairly precise way – essentially in the form of mathematical signals.

For Bossaerts, this means the ability to process risks is encoded in the brain in the form of an algorithm, similar to any mathematical model that quants like so much. Bossaerts has further concluded that while a person may receive new information, the brain’s “processing algorithm” for risk remains constant.

That is, Bossaert claims to have discovered mathematical measurements in an essentially emotional area of the brain so that the processing of emotions in the human being is not something that is done raw, but something that is reported in a reasoned way.”


It is clear that the application of neuroscience to trading opens up a whole new field of research to explore. While the applicability of neuroscience findings to trading is still in its infancy, it is not out of the question that in the future we will be able to reprogram ourselves to trade or act in a certain way to prevent our stress from affecting our performance or even take medications that modify the production of certain hormones to control imbalances in our character that affect trading.

Forex Psychology

Five Reasons You Need to Stop Stressing About Forex

Forex can be stressful, it’s one of the things that are told to us over and over again especially when things are going the wrong way, but does it need to be stressful? There are things that we can do that help us to reduce the amount of stress that we are put under and ultimately to show us that forex trading really isn’t anything to be stressed about.

Why can it be stressful?

It is important that we understand why trading can be stressful and in the right situation, it can be very stressful. Each and every person will have different feelings and will have different reactions to how the markets are going and also how their individual trading is going. Stress often comes from losses, when we lose it is not a nice feeling, as soon as we take a loss we have lost a bit of our money, money that we like. If that money is money that we actually could not afford to lose, then the stress levels will continue to rise further. For many stress can also come upon us when a trade is in the red, we can see it going the wrong way and this can cause us to worry that we will lose some additional money. Stress can come at any time and so we need to work out how we can work through it and help to reduce it.

Use proper risk management.

Risk management is the cornerstone of any strategy, it is the foundation that is there to basically protect your account. It is there to ensure that you do not lose more than you want to with each trade and ensures that you do not blow your account. When you have it in place it can help to take out a lot of the stress from your trading. Of course, the opposite is also true, if you do not have proper risk management in place then every single trade that you make will have the chance of blowing your account. If You are in that situation every trade then you will be under constant stress every time that you trade. This is why you need things like trading rules, dictating how and when you trade, stop losses to help protect your accounts, and a proper risk to reward ratio, that dictates the maximum loss and profits that you will make with each trade. Knowing the maximum that you can lose on each trade can really help you to stop stressing about them, as you already know how much you could lose.

Take regular breaks.

At times it will be impossible to prevent any stress from building up, so then we will need to try and deal with it. One of the best ways to do this is to simply take a break, breaks are a fantastic way for us to reduce our stress levels. Getting away from what is causing the stress is the first step, it will prevent any new thoughts or new stresses from being added to the equation. Secondly, being away and doing something else will help to take our minds off of things that are already causing us stress. This way we think about something rose, something else that gives us enjoyment or at least doesn’t add to the stress. Doing this regularly can help you to regulate the stress that you are under. Do this regularly, multiple times a day, it is even a good idea to do it even if you aren’t currently experiencing stress. Just ensure that you are not sitting in front of the computer for hours and hours without any breaks. Coming back with a clear and calm mind can really help you to improve your productivity and trading results.

Ensure we trade with money we can afford to lose.

The golden rule of trading and investing, only to trade with money that you can afford to lose. It remains true in this situation too and is certainly a way to help prevent certain stresses that you would otherwise experience. Think about it, you deposit some money that you actually need for your rent as an example, how would you feel as a trade goes into the red? You will be in a constant state of stress and panic, you are about to lose the money that you need for your rent and you won’t be able to say it this month. Why would you put yourself under that? Reduce or completely remove that level of stress by only trading with what you can afford to lose. If it will affect your life, do not trade with it. Also do not borrow money or take a loan in order to trade, that just puts you in debt and you will end up owing a lot of money should things go the wrong way.

Understand that losses are a part of trading.

Losses are a  part of trading, a big part of them, every single person that has ever traded (apart from those that only do a single trade) will have experienced losses, all of the most successful traders in the world have experienced losses and a lot of them. In fact, they are so much a part of trading that we factor them into our trading through our trading strategies and risk management. Ever heard of the risk to reward ratio? This is where we decide how much we will risk with each trade and how much we want to win. Knowing this means that we know exactly how much we might lose with each trade and that each trade is actually a fantastic way for us to learn from what we have done and for us to improve. Look at why the trade lost and what we can do differently. 

Those are five of the reasons why you should stop stressing about your trading. We understand that trading can be stressful, of course, it can, anything to do with money can be. It is important that we do what we can to reduce those stresses, if things get too stressful it can make us want to quit entirely, so try and include and think about the things that we mentioned above, it will help you to be calmer when trading and in the long run will enable you to be a much more successful trader.

Crypto Forex Psychology

The Impact of Psychology On Cryptocurrency Trading

The cryptocurrency market does not follow the rules of technical and fundamental analysis. Only psychology works here. Who will be the strongest: institutional investors, agitating markets with capital, or private investors, who know how to generate profits from these short-term price changes. The psychological patterns of cryptocurrency movements can form the basis for successful strategies. You will learn from this article how to develop a psychological strategy for operating cryptocurrencies.

Psychology of Operation

Cryptocurrencies make up a market that grows day by day. Following the announcement of BTC futures to begin trading at CBOE and CME, bitcoin increased from $12,000 to $17,000, breaking the 60% level of capital in the entire market. Other cryptocurrencies are also growing fast; total market capital grew more than 30% over two weeks, reaching the level of $500 billion. Such a rise attracts more and more traders to this market, who immediately face the need to choose a correct strategy.

It is possibly difficult to make predictions for cryptocurrency with technical analysis, so trading strategy indicators are not relevant here. The market is today immature to use indicators in historical periods. Sometimes it is possible to follow the formation of graphic figures (patterns), but quotes are often unpredictable. One can apply fundamental analysis, but even so, the movement of price is difficult to predict. For example, bitcoin, following news about the futures release, is constantly rising with moderate fixes. IOTA, following positive news from developers in late November, grew 2.5 times over a week, but then fell 40% in just one day, from $5.48 to $3.11.

Operating with fundamental analysis is complicated by several factors. First, there is no economic calendar. Second, there is no knowledge about how the news will influence quotes. Example: deep drop followed by a rise in the price of bitcoin after canceling Segwit2x; investors did not understand at first how to interpret the news. The cryptocurrency market is driven by private and institutional investor psychology. That’s what used to be used to develop a trading strategy.

Psychological Strategy

Most cryptocurrencies continue to increase the price fast, fewer and fewer investors want to set the profits. More and more traders invest in cryptocurrencies, but reserves are declining. In some markets, the margin is 20-25% and transaction fees make trading flat. First, it seems to be one more bubble. Institutional investors deliberately push the price up, aiming at a market explosion after setting positions.

Some considerations about how to make money with cryptocurrencies:

Study the amount of market demand and provisions. Don’t do long-term operations as you can reverse the market trend. If we have an order that will cover more than 20% of the total market volume it is better not to invest. A trader’s goal is not to create profits in the temporary growth of an unpopular currency with low liquidity. The trader’s goal is to minimize risks. Diversify risks. Fiduciary inflow is not as significant as it used to be. Money flows from one cryptocurrency to another.

There is a similar situation when Segwit2x was canceled. Then, after the collapse of the BTC, the BCH ratio immediately increased. Analyze the correlation of cryptocurrencies and study the currencies with inverse relation (e.g., BTC and ECH). If we find a growing market, you will win anyway; if you transfer from one currency to another, you will insure against potential losses.

Buy cheap. The cryptocurrency market is highly volatile. A 20%-25% asset drop is considered normal, so buy when the price is being corrected. If a currency falls more than 30%, then investors will not trust it. Study the volume of trading in markets. You can do it in market sections on the Coin Market Cup website. If trading is not equally assigned, there is a significant excess of trading volume in a single market, which could indicate that someone is deliberately raising the price of a cryptocurrency by creating an expectation around a currency to raise its price and then sell the asset at a higher price.

Don’t go into the market that’s going too high. A rapid rise (20%-25% per day) compared to the previous day may indicate that the rise is speculative and is likely to be followed by a prompt correction. The same was with IOTA and Ripple. Don’t get carried away by ordinary emotions. Communication forums are useful for Forex but not for the cryptocurrency market, where everything is unpredictable. By joining the overview you can get caught by big investors, who use rumors as a tool to manipulate.

Ignore the time corrections. However, cryptocurrency price charts seem like a Ponzi scheme and the goal of traders is to withdraw money in due time, there is no reason for the cryptocurrency market to collapse. For example, analysts predict that bitcoin will break the $20,000 level and grow more.

Forex Psychology

Top 10 Forex Trading Psychological Mistakes

It is said that the personal psychological challenge constitutes 90% of the struggle to achieve consistent success as a forex trader. Can it be true? Yes and no. Many great traders who have written about their experiences have recognized how their own inner psychological struggles have caused them heavy losses, even when they “knew” they were doing it wrong. There can be no doubt that the psychological factors are of great importance in the game of Forex or when speculating in any market.

Mastering your negotiating psychology isn’t going to offer you money by itself but, if you’re not aware of the tricks your own head is trying to reproduce, you are very likely to be losing even if you are a good trader and have been successful in your trading decisions. There are hundreds of ways a trader can sabotage himself. There is a “physical” aspect to trading.

We want you to find it useful in your journey as a trader to be aware of the various psychological traps that traders usually fall into. Sometimes you have to experience something for yourself to learn from it: nothing teaches us better than direct experience. We want some of these points to give you a new understanding of the trading errors you have already made or warn you beforehand of mistakes you have not yet made. Make the effort not to blame yourself when you make a mistake while operating: get your “revenge” by learning the lesson and not by making the same mistake.

#1 – Not Believing In Your Methods

It is surprising how many people operate in the markets without being convinced that they can make money or at least make sure that they have a good chance to do so. Even if you think you believe in what you’re doing, are you sure you don’t have big doubts under that surface? The answer to this problem is to prove its methodology. For example, if you follow trends, take time to review much historical data. Does it show profitable results most of the time? It’s based on a solid concept, like a reversion to mean or impulse? If the answer to all these questions is yes, you should be sure of what you are doing and not forget that you believe in it.

#2 – Not Having a Plan and Sticking To It

This sounds very obvious. It’s not just about having a plan, it’s about having several plans and leaving some flexibility. For example, if you are doing day trading, you must have a method to decide in each session which currency pair or pairs to trade. But, if the pair that choose goes nowhere, while another pair shoots up, you may want to reconsider your decision rather than just “stick with the plan”, for example, allowing you the option to modify your opinion hourly. It is a “plan”, but a plan may also include some structured flexibility.

#3 – Not Knowing the Difference Between Planning and Living

It’s pretty easy to make a plan that works on paper, but living that plan in real-time can be something completely different. A good example is to make a plan to do hundreds of trades in a year or so and expect your account to suffer a 20% reduction as it suffers a streak of 20 consecutive trades with losses. You can make the review in a day or two and decide if such losses are acceptable. You will probably feel very different when you spend weeks or even months losing real money over and over while your balance shrinks. There is no optimal answer to this dilemma, just keep in mind that spending months of time in an hour or so is not necessarily a good psychological practice for bad negotiating times.

#4 – Being Afraid Of Placing A Position

These are the opposite sides of the same problem. The best way to overcome this is to tell yourself every day that you are willing to place several positions in one day or none at all, and that what you do will depend entirely on the market situation rather than the condition of your wallet or your mood. There will be days without action and days with lots of action. You have to adapt to the circumstances.

#5 – Making “Agreements” with the Market

Tell yourself that, if the price goes up another 10 pips or if it doesn’t go up in the next hour, you will close the position. This is simply your mind subjected to your anxiety. Ignore it, stand firm, and just step out of positions according to your plan.

#6 – Being Too Anxious To Take Profit

You see a benefit on the table and think how nice it would be to take it and stop operating that day, thus missing what could be a more profitable day. This is laziness and self-indulgence and must be controlled. The only reason to take profit must be that you have a real reason to believe that you will probably not go much further in the desired direction. Let the market point it out, not anticipate it.

#7 – Protecting Yourself From Losses

This is really the same as an appetite for profit. You may need to rethink your risk management strategy.

#8 – Letting Positions With Losses Run

There is a simple way to avoid this: always use a strict stop-loss and do not constantly expand it.

#9 – Not Taking Responsibility for Your Trading

It’s very easy to make excuses. If I hadn’t missed the bus/been distracted/in a bad mood then I would have handled the position better and made money instead of losing it. It’s your duty to make sure that that you do not miss the bus or get distracted or be in a bad mood. Once you take responsibility for your trading activity, your mood can improve as you see that there’s a way to make things better. It’s a marathon, not a sprint.

#10 – Endless Search of the “Holy Grail”

You test and design a strategy that offers an average of 20% profit per year. But wait! Try something else to earn even more, say 25%. Is there anything better out there? Maybe, but this process of searching and testing can take a long time. Consider this: If you spend 6 months testing instead of operating in a committed way to find a way to earn 25% instead of 20%, you will simply lose 10% and it will take you another year to make up for it. Keep searching by all means, but don’t let that affect your trading. Even if you have a pretty solid methodology, it doesn’t have to be perfect!

Forex Psychology

The Fundamentals of Mental Accounting in Forex Trading

The vast majority of agents involved in the financial markets know the term accounting. We also know the different categories within the generic concept: financial accounting, corporate accounting, analytical, management, banking, etc. However, what do we know about Mental Accounting? Have you ever wondered about the internal processes that our minds follow when we open or close a position? Why isn’t it easy for us to close a loss-making operation? Why do we rush to sell the winning trades, even knowing that they can have a favorable path to our position?

In the same way that a company has to identify, evaluate, and record the relevant accounting facts, individuals face the same problem. When an institution provides a service or sells a product it has to record this fact, when we in the market open a position, we open a mental account that will move with the fluctuations of the market even if we do it unconsciously.

Mental accounting seeks answers to questions such as those I have just asked and the purpose of this article is to show that mental accounting influences decision-making whose final outcome is uncertain, that is, the decision under uncertainty, and that its study and knowledge can provide us with greater mental stability to face activities such as investment or trading. Mental accounting is the set of cognitive operations developed by individuals to organize, evaluate, and track financial activities.

Fundamentals of Mental Accounting

Financial accounting is composed of a set of rules that have been codified over the years, can be found in quite a number of textbooks and unfortunately, there is no equivalent of these rules in mental accounting, We can learn them by observing human behavior from which we can infer rules of conduct. In this article we will try to see three components of mental accounting:

– The first refers to how we perceive actual events and how we make decisions based on those events. In the diagram below, the individual or trader is linked to the actual events.

– The second component is the allocation of each activity in your specific mental account. Financial accounting teaches us that there is a classification of expenses and revenues that are within a budget.

– The third component tells us about the frequency with which we evaluate accounts, we can audit our financial accounts annually, monthly, or daily if we consider it, what happens with our mental records? , Do we have enough willpower not to count the money we are earning or losing while we are positioned in the market? In the diagram below would be the return flow of each account to the trader.

A more detailed study of our mental structure shows that it is not advisable to count money in situations that require decision-making under an atmosphere of uncertainty such as poker, black-jack, or trading so that the audit of our accounts should be done with enough time to not affect our decision making, this time-space will be different for each trader, who through a process of trial and error must find its optimal review frequency.

The Profit and Loss Environment

To get us into the decision-making process of each individual, we must infer a utility function that offers us an output value for each of the decisions and thus be able to decide between our range of possibilities in matters such as, When to buy? At what price to buy? How much to buy? For this we will use the function of Kahneman and Tversky which has three essential elements:

– Transactions processed by mental accounting are mainly evaluated one at a time and not in relation to other transactions.

– Both the loss function and the profit function show a decreasing sensitivity, and this implies that the difference between 20 and 30 euros may seem larger than the difference between €1,000 and €1,010.

– Risk aversion. The loss of 100€ causes us more pain than the satisfaction that provides a profit of 100€. The influence that risk aversion has on our minds is considerable, as we shall see later.

Below we will review with some examples the characteristics of the function exposed. Suppose we want to buy a tie and a suit for €10 and €120 respectively, and when we arrive at the store the seller informs us that in the store located 20 kilometers from the store where we are, they have lowered the prices of both products by €5, leaving them at €5 and €115 respectively. Given this circumstance, most people will prefer to travel the distance to benefit from the reduction of the tie but will not do the same for the suit, although the reduction in both cases is the same. In this case, our mental accounting is based on relative rather than absolute perceptions.

The example of the tie and the suit shows us that we are willing to travel a distance to save money on the lowest priced product and not for the same savings on the most expensive product so we infer that the utility that provides the savings is associated with the differences in value and not in the value of the difference. This helps us to model how the individual processes event combinations to maximize their usefulness. We need to know if for two events, X and Y, their joint utility function F(X+Y) is greater than the sum of the individual functions F(X) + F(Y), and the utility function we mentioned earlier would have the following features:

– Separation of earnings.

– Grouping of losses.

– Grouping small losses with larger profits (to overcome risk aversion).

– Separate small gains from larger losses (the profit of a small gain exceeds the profit of reducing a large loss by a small amount).

An example of the first rule is the possibility of winning a pool with a prize of 75,000 euros, against winning two pools of 50,000 and 25,000 euros respectively. According to the work done by Richard H. Thaler, 64% of the surveyed population prefer the second option. The examples for the other rules are as intuitive as the one mentioned. Regarding the second section, we prefer to pay a purchase of 50 € with a credit card in which we will group all the purchases of the month and will be included within the total invoice of supposing 790 € to pay the 50 € in cash at the time of the purchase.

Opening and Closing of Accounts

One of the most useful components for mental accounting trading is the decision when to leave an account open and when to close it. Consider the purchase of 1,000 shares of telephone to 10€, the initial investment is 10,000€ but the value of the same will fluctuate with the movements of the market, producing gains or losses in paper until we sell the securities. The mental accounting of these losses and gains is misleading and depends on the time variable, one of the basic intuitions is that an effective loss produces more pain than a loss on paper and because closing an account with losses produces pain, Mental accounting induces us to delay the decision to close losing trades and to advance the decision to close winning trades to feed our ego.

Decision-Making: Grouping and Past Events

When we think of decision-making processes as a set of events that we can group together or dissociate, we must consider the importance of parenthesis localization in grouping together these events, because the pain produced by a loss is less if we can combine this loss with a higher gain, thus blurring its total effect.

Just as important are past events for decision making, if we are operating in the market and we are going to open a position, the results of past decisions will always affect the mental process of the new position. I would like to focus on the importance of real money, it is not the same to do this test sitting in the living room while we have coffee, that operating in the market while we gamble our savings.

The first question in the survey gives us the vision of how a gain can stimulate us to look for more risk in the same account, a este fenómeno se le denomina ‘house money effect’ o ‘efecto del dinero de la casa’ o ‘efecto del dinero arrebatado al mercado’ y debe su nombre a los jugadores de casino que llaman ‘la casa’ al casino y por consiguiente, The money from the house would be the one they’ve previously taken from the casino. This mental account of our money and that of the casino or financial market is reset to zero every day if we dedicate ourselves to an intraday operation. In this case, we have a clear example of how mental accounting is a problem for our operation since we should treat in the same way the money with which we start the operation of the money taken from the market, that should be treated as our money and not put you at greater risk.

The second conclusion of the study is provided by the second and third questions, past losses do not stimulate the search for risk, unless the new move offers us the possibility of compensating for the previous loss (break-even point), any trader, whether professional or amateur, can corroborate this conclusion through their personal experience.


During the presentation of the examples and works carried out in the field of mental accounting, it has been tried to demonstrate the importance that the processes of mental calculation have in our real operation, starting from the great ignorance that exists on this matter. The more knowledge we have of these processes, the greater our capacity to fight against the market and its greatest enemy, which is within each of us.

The trading industry knows that the mental structure of future traders is right for them to lose money, the difference in lost money between novice traders will be defined by how long it takes the trader to realize that the enemy is at home and that he has to try to change his beliefs, the next thing is to have a good system, a stable rules of money management and above all, being well-capitalized, a lot of discipline and a high dose of patience.

From now on, when you open a position, think about what has been developed in the article and try to decipher the mental registers that are being created while we are in the market and adopt the following rules:

– Avoid counting the money until you have closed the position.

– Treat in the same way the money taken from the money market with which it began to operate (house money effect).

– Never forget the influence that the previous operations have in the decision-making process of the present operations.

– Risk aversion leads us to make the suffering caused by a loss greater than the satisfaction caused by a gain of an amount equivalent to that of the loss.

– Do not be carried away by the illusion of measuring money in relative terms.

– Do not let your ego win the game by delaying the closing of the losing trades and accelerating the winning trades.

Forex Psychology

Psychology and Mathematics in Forex: Control and Calculations

Obsession with control is an exceptional feature in the animal world. Humans develop more or less complex systems to direct each and every facet of our lives, or so we try. The illusion of being in charge reassures us, and when it comes to handling our money, much more. Is that why professional traders are so upset that Forex trading is compared to casinos?

In part, yes; but what really irritates us is that equating gambling with trading is the same as saying: Hey, you don’t control the situation, everything is a product of chance! Certainly, there are factors that cannot be assumed in a casino’s bets, as much or more than in trading. Obviously, there are subtle differences. The first is that, in gambling, we call that uncontrollable factor ‘luck’. In Forex, we call it ‘strong hands.

Without euphemisms, the reality is that there is a degree of uncertainty that is impossible to calculate accurately. And its weight is of such magnitude that it can destroy any trading strategy, no matter how elaborate. You can’t predict the movement of the market, just as you can’t guess at what number the roulette will drop the ball. Of course, when it comes to decision-making, Forex offers us a much more attractive illusion of control.

Forex: A Matter of Psychology

Certainly, a lot of decisions have to be made when we talk about investing in currencies, many more than putting a lot of chips on a number or a color. The problem is that most novice traders focus on building extremely elaborate systems, thinking that the important decisions are those that have to do with the application of indicators. It is clear that technical analysis is important, but it is not the control of the chart that should worry a good trader.

The real challenge of the initiative is self-control. In fact, psychological decisions often determine the future of small investors. The reason is obvious: when you enter the jungle, you will live hard times for which you have to prepare mentally. When you dive into the market, no matter which one, you have to go with a lesson learned: you’re going to lose money and a lot. If you’re not psyched for that, stick to something else.

Forex isn’t built to make easy money. What’s more, to make a profit by trading in foreign currency, you have to go through a tortuous path of profit and loss that can undermine anyone’s mood in a few months. It sounds exactly like what happens in casinos, so why are we still determined to put a dividing line between bookmakers and Forex? Surely, because once the psychological work phase is over, luck is a negligible element in the equation.

Forex and Probability Calculation

In reality, rather than luck, the risk that can be assumed is the variable that defines bets and investments. In both cases, and greatly simplifying the matter, there is a chance of losing and a chance of winning. Just take as an example a short transaction with CFDs: the price can go down (profits) or up (losses). The difference is that decisions are made based on in-depth market analysis, the development of a strategy, and certain probabilistic calculations.

This is not to say that, in general terms, it is not possible to operate with CFDs following the same philosophy as the bookmakers. Trading with a casino mentality means adopting one of the fundamental premises of trading: minimize losses and maximize profits, increasing the probability of success above 50%. Casinos get it by adapting their games; experienced traders, choosing strategic zones on trend lines, resistance, and support.

Finding these points is not easy. It requires a study of the market and an exhaustive search for patterns; but, in addition, it implies not being carried away by emotions, enduring astronomical losses, and cutting profits early because of anxiety. Anyway, trading in the currency market may not be the same as playing roulette; but, as Mr.Khoo says, you can (and should) do trading thinking like a casino.

Forex Psychology

Why Do We Sabotage Ourselves Emotionally in Trading?

We spend our entire childhood and adolescence learning to control and develop appropriate responses to our emotions. We learn from our teachers, from our parents, from society, and from our idols through observation and comparison. Therefore, we might think that most people have some control mechanism when they start trading. However, in practice many of us when we operate find ourselves struggling with our own emotions and losing control. While there are a wide variety of reasons that depend on each trader, these are the most common.

Unresolved Personal Problems

This is one of the main reasons why we always say that trading is a way by which we know ourselves. If there is a past problem that we have not solved or that we are not even aware of because the conditions have not been met for it to emerge, I can guarantee that by operating in the markets that problem will appear. In fact, until you identify him and confront him, the problem will resurface again and again. I’m sure you will. A fairly common situation that indicates the presence of a problem is that of a trader who wins consistently over a period of time and then returns everything to the market in a matter of minutes.

Self Reprobation

Simple but dangerous, self-deprecation puts us into a vicious circle that often begins with the mistake of not preparing properly to operate every day. You don’t prepare, you do something stupid and possibly avoidable, you’re angry at the time of surgery, you get depressed, you lose confidence in your abilities, and you make the mistake of not preparing for the next time. In trading, constant effort and results are everything, not just a single trade or a session. Negative emotions can not only be demoralizing and demoralizing but can also physically and mentally exhaust us.

Immediate Effect

When we are operating and need to perform some kind of action, it is often the strongest emotions that come into action just before executing our entry or exit order. This is perhaps the least easy aspect of overcoming without effective strategies to deal with it. When we suddenly have an emotion of any kind, we are inclined to act on it. The problem is that markets don’t care and, in fact, they move in a way that often aggravates the problem. Emotions distort the reality of what is happening and drive us to act in a way that is often counterproductive.

Based on these reasons we can find in our trade situations like the following (sure to sound to more than one!):

Greed leads us to risk more than we should, leveraging ourselves excessively and ruining the account quickly after a streak of winning operations that has led us to trust too much. It confirms a pattern we have studied but we are afraid to enter the operation and we end up joining the movement too late, buying or selling at the end of the movement.

When a trade goes against us, we decide not to assume the loss and expand or remove the stop loss thinking that the position will return to our favor, thus breaking with our trading plan. The reasons behind all these behaviors are the biases of the mind, some of which we have already seen in other articles on Psychology and Trading. In the case of emotional sabotage, three are the biases that fundamentally affect us:

Bias of Confirmation: This is the tendency to favour, seek, interpret, and recall information that confirms one’s beliefs or hypotheses, giving disproportionately less consideration to possible alternatives. Applied to trading, it would be the tendency to ignore the evidence that our strategies will make us money or the opposite: trust patterns not properly analyzed thinking that we will win when they are actually losers.

Bias of Recent Experience: It is a bias of our mind that comes to keep a sharper and more intense memory of the information we have received more recently, which implies that the context that we apply to our way of thinking at a given moment assumes the sum of memories or previous experiences weighted according to the closeness in time of such experiences or memories. This bias clearly explains why traders rely on excess if they have a winning streak, They hesitate to open a new position if they have had a bad streak or make bad decisions when they are not focused enough and chain several mistakes.

Media Bias: It is the tendency of the media to select the news and information with which it is intended to distort, distort, or lie about a certain fact. Applied to trading, the consequence would be to get carried away by the news published by the media, buying the trendy values, or following the new guru who appeared on television.

How to Overcome Emotional Sabotage?

I’m sure you’re tired of hearing it, but apart from the fact that this is a highly recommended practice to overcome emotional sabotage, it’s absolutely necessary: KEEP A TRADING JOURNAL! In that diary, you will have to tell things as they happened, which requires an important exercise of honesty with ourselves. Don’t blame the market and those who move it. Document what really went wrong and whether we were responsible for it.

The exercise of keeping such a diary honest with ourselves may involve encountering uncomfortable revelations but without a doubt, it is the best (and fastest) way to improve our trading since if we identify and correct the problem we detect (before we merge our account!), this could be a real change in our career as traders.

Additionally, an excellent idea is to create a checklist of our trading plan and make sure you have it in front of you all the time. It’s certainly hard to break the rules if we have them in front of us. By doing this we have another powerful tool to identify the root of the problem that causes emotional sabotage and allows us to correct it in real-time before we go ahead and make more mistakes that ruin our account.

Finally, another important recommendation is to learn to know yourself and how we act as traders. If we tend to make certain mistakes, are prone to be victims of certain biases, are confused by the excess of information, or let fear and greed cloud our judgment, then it will be necessary, to be honest with us and admit how we are, for better or for worse. Surely there will be some traits of our character that we will have to learn to correct if we want to succeed in trading but knowing who we are will allow us to make the most of our capabilities and minimize the impact of our weaknesses, thus minimizing the impact of emotional sabotage on our account.


In trading and in life, many times the key to success is knowing what is not to be done, so if bad habits and mistakes are costing us money, then like many traders you are struggling with emotional sabotage. And as if it were a disease, the sooner we detect emotional sabotage, the sooner it will be treated and we will avoid further damage.

A properly studied and analyzed strategy is our best weapon on the market, so once we have one we must let it work. Use your trading journal to detect emotional sabotage and be honest with yourself. Remember: just because the market does things that defy reason, doesn’t mean we have to do them too!

Forex Psychology

The Forbidden Truth About Trading Mindsets as Revealed By An Old Pro

Thinking about forex trading in the right way is central to doing forex trading in the right way, yet it isn’t discussed nearly enough. But why learn things the hard way when you can start out with an awareness of the key issues?

Getting into the right headspace for trading is a pretty boring subject compared to the really exciting stuff like getting into your charts, actually pulling the trigger on trades, adjusting your stops, and taking profit. But getting into the right mindset and getting yourself prepared for trading is just as important as all of those put together.

There’s a ton of experienced traders out there who wish they had had someone to sit them down at the beginning of their trading career and explain to them a few of the key fundamentals that they have now learned the hard way – through bitter experience – but that they could have started out knowing. Most of the lessons this imagined trading guru would have taught them are about the mindset you develop going into trading in the first place.

The Right Mindset

This is one of those things that people have the hardest time getting their heads around and understanding to a level that really impacts their trading.

Think back to the first time you encountered trading. Not even the first time you thought about getting into trading yourself but the first time you even came across the concept of trading and investing and using your money to make more money. If you are anything like most traders out there, this would probably have happened to you when you were a kid and you first heard about these people out there who call out buy and sell orders over the phone or whatever and who track the price of some security or other online charts with crazy ups and downs. Chances are you would have seen this at the movies or on TV and which particular show or movie you first saw this in kind of depends on how old you are and what generation you belong to. For a certain (read: older) cohort of traders, it was those 80s and 90s movies about stockbrokers, like Wall Street or Other People’s Money. The point is that this era of TV shows and movies really inspired a whole generation of traders to think that they could get into stocks and shares and make big money overnight. That generation had to learn the hard way that overnight success takes years to achieve.

Put another way, they had to learn and understand that trading (whether its commodities, stocks, forex, or whatever) is much more like a genuine, bona fide professional career. A career that takes hard work, experience, learning, and commitment to master. Sure, there are a few outliers here and there who got lucky and rolled in some big bucks with little effort from the moment they started. But you have to remember here that at the other end of the bell curve there is a whole other set of outliers who just got wiped out immediately. For everyone else in the middle of that curve, there are no alternatives to learning the ins and outs of the craft – in the same way as you would learn any other profession or trade.

Knowing the Difference Between Good and Bad Trades

It is important to focus on making good trades. But what, when it comes right down to it, is a good trade? Now, lots of traders will have their own definitions but a few elements are essentially undeniable. One is that a good trade can sometimes be a trade that loses money. What? Say that again! Yup, that’s right, a good trade isn’t always a winning trade.

But how is that possible? Well, that’s why it’s important to understand what a good trade is. A good trade is one that you entered into having done all of your homework. You developed a system of indicators and technical criteria; you worked out how to manage your stake in a given currency pair based on things like volatility and risk; you calculated reasonable stops to take you out of the trade in case things turn sour; you stayed in the trade in line with the plan and system you devised to maximize your gains. In short, a good trade is one that you carried out in line with a comprehensive and rigorous system of your own devising that has been tested and adjusted in order to maximize gains and minimize losses.

Sometimes, not trading is an important element of making a good trade. There’s no rule out there saying you have to trade and staying out of a trade that would have lost you money is one of the best ways of avoiding losses. If you are knowingly and consciously staying out of trades because the tools and indicators that you have integrated into your system are telling you not to trade, you are exercising the kind of patience that is important to making good trades. An amateur or beginner trader will be tempted to enter into trades on the basis of boredom or because they are worried they haven’t traded in a while. They are not patiently waiting until all of the conditions are in place and all of their criteria are fulfilled before entering a trade.

A good trade that loses money, therefore, will also take you out of that trade in a timely manner that will keep that loss to a minimum. A bad trade that loses money will see you spiraling out and losing more than you planned for or more than you accounted for in advance. Every trader out there enters every last trade they make thinking that it will be a winner. In fact, most amateur traders out there will have more winners than losers but they will still be losing money in the long term. How’s that possible? Well, because their losers are often much bigger than their winners. This is because they fail to bug out of a losing trade on time and, on the flip side, they fail to stay in the winners long enough to take advantage of the gains. Because there is no way of knowing in advance which of your trades are going to be winners and which are going to be losers, you have to enter them with the same set of contingency plans in place to cut your losses should things go south and stay in the trade to the appropriate point that will maximize your gains. This is the basic concept of risk management. The way you trade has to be organized in advance to account for an unexpected shift in the market.

Going hand in hand with being ready to cut and run when things aren’t going your way is a well-planned approach to letting winners develop to take full advantage of the gains available. The way to understand this is to tell yourself that it ultimately doesn’t matter how you enter a trade. The criteria that lead you to enter a trade aren’t the key thing to making money from trading. What makes you money is managing your money and accounting for risk – i.e. staying in trades long enough to reap the rewards and getting out of them quickly if they are performing badly. If you can design and develop a system that does this reliably for you, you can still make money even if your win to loss ratio is 50-50 or less. 

Focus on the Pips

Pips are to forex traders what dollars and cents are to stock traders. In equities and commodities, you’re looking to profit from your trades in dollars and cents – if you buy a stock when it’s worth $4.30 and sell it when it’s worth $4.70, you made forty cents. Well, in forex trading you’re looking for your trades to make pips. Pips (or price interest points) are the smallest amount of a currency that can be traded. A pip is one one-hundredth of one percent – the smallest amount by which the difference in value between two currencies can change. 

Focusing on pips is one way to shift your focus away from the actual money you are making (or losing) on a given trade. But why would you do this? Well, part of the answer is that this helps you to focus on making good trades. Over-focusing on the money does a couple of things that will hinder your trading. First, it clouds your judgment about which trades are good trades. The other thing that over-focusing on the money does is introduce a completely unnecessary emotional element to your trading. Without consciously wanting to, you will start thinking about what that money means in the real world – whether it’s the bills you can pay or the things you can buy – and suddenly but imperceptibly you’re experiencing an emotional response to the trade you’re entering or the stop you’re adjusting or the exit you’re planning. If you could remove money from the equation completely and focus instead on the success of each trade on an abstract level, your trading would improve automatically. This is why focusing on the pips helps to remove you at least one step away from thinking about the money involved in trading.

Avoiding Bad Trades

Just as a good trade can lose money, a bad trade can make money… Usually completely by accident. A bad trade is one that you entered into on a feeling, with a sense that it would pan out how you hope. Usually, if you’re making bad trades you don’t even have a well-worked-out system in place to regulate your trading or, if you do, you’re not sticking to it on the back of some emotional response you’re experiencing. There is a multitude of factors that go into what makes a trade a bad trade but they include not accounting for risk; improperly sizing your stake based on how you feel this trade will go; placing stop or take profit orders based on fear or adrenaline, or even failing to even place a stop order at all because you have a hunch that any pullbacks won’t be full reversals.

It’s actually very simple really. Traders who lose money in the long term are the ones who either don’t have a system in place to manage their trading or don’t stick to their system if they have one. Because you know what will happen from time to time? You’ll hit a run of losing trades and that’s when you’re in real danger of reacting emotionally and overriding the system you have put in place to stop you from doing just that. Let’s say for example that you run up five losses in a row. That’s when you start to question everything. Is your system failing? Are you sticking to it too rigidly? Here’s a common reaction.

Lots of traders will look at their sixth trade after a run of five losers and begin rethinking their position size. Some will lose confidence and cut their position size because they’re worried they’re heading into another loss. Others will try to use that sixth trade to win back their losses and will up their position size to compensate. Both of these responses are mistakes. You are letting your emotions override what is otherwise – if you’ve done it properly – a reliable and robust system that has been tested to death both by looking at historical market movements and by being run through a demo account.

Another common emotional response is when you’re in a trade and you see the price heading in the opposite direction to the one you were banking on. You’re watching the price move and you can see it approaching your stop-loss. Many inexperienced traders – especially those coming into the trade on the back of a losing streak where the price burned through their stops and then recovered – will be tempted to panic and cancel their stop order hoping to stay in the trade until it swings back in the direction they need. Sitting here, calmly reading this, you can immediately see the problem with this – the price doesn’t recover and your losses run out of control. It’s having the presence of mind to see this happening in the heat of the moment and exercising enough self-control to stick to your system.

Lastly, those traders who have stopped listening to their system (if they even have one) and are letting their emotions rule their trading, will also make this mistake. Sometimes, when you get in on a good trade and the price goes your way, you lose track of your charts and indicators and you start looking at the money. It’s probably happened to most of us early on in our careers. The price moves quickly after we pull the trigger on the trade and our gains start going up. You get lost in the excitement and start making quick calculations in your head that go something like this: “Oh man, can’t believe it, I just made 500 bucks and before breakfast too! I can put down that payment on my car/pay those bills/buy that thing I’ve had my eye on”.

In other words, you over-focus on the money and you pull out of the trade. It’s only later when you look back at the price movement that you realize you could have stayed in longer and increased your gains even more. That kind of emotional moment of getting out of a trade too soon is literally the opposite of what you should be doing. You should be exciting your trades based on a rational assessment of what your system is telling you. If your indicators are telling you the price movement still has legs, then stay in and adjust your stops accordingly. Exit only when your system tells you to. 

So, to sum up, if you can get your head around the fact that bad trades are bad for your trading even when they make money, you are well onto your way to never making a bad trade ever again. If you can focus on making sure you trade according to your system and that every trade you make is a good trade, as we’ve set out in the previous section, then you are on the first rung of the ladder towards becoming a successful, professional trader.

Get Some Perspective

Another important element of getting yourself into the right mindset is maintaining perspective. This is a hard one, especially early on in your trading career. Because this is something that usually comes with experience, it is hard to explain to traders who are still on that steep learning curve. That said, it’s well worth talking about because being aware of it as a factor is going to help you to get there faster.

The fact is that every trader goes through a process where their state of mind depends on their last day of trading. You trade for a day and if that day went well, you feel great. But if it didn’t go well, your mood suffers and you start to lose hope. Sometimes, after a couple of days of losses, even if they were just minor losses, you can go into a weekend feeling really blue. Now, there are a couple of problems with that. The first is that it is downright exhausting. You feel emotionally drained and that can have knock-on effects in your life outside of trading. And here’s the thing – that’s not the point of trading at all. If forex trading is having that effect on you, if it’s getting you down or even making you feel depressed, you’re no longer enjoying it and you begin to see it as a chore or a burden.

The other problem is that these mood swings can affect your trading. You become a confidence trader – one who’s trading starts to depend on how confident they’re feeling at that particular time. And the more that happens, the harder it gets to stick to your system, and the less you stick to your system, the more bad trades you’re going to get into. If you find yourself making bad trades, pretty soon you’re going to be losing money. It’s a cruel spiral that you can fall into if your mood becomes dependent on how your trading is going. Which is why it’s important to maintain a bit of distance and perspective.

Introducing Regularity

One way to help yourself maintain perspective is to introduce some regularity into your trading. If you find yourself trading too often, getting online as soon as the markets open, and regularly getting into trades as soon as it is at all possible – then you are probably trading too much. Of course, everybody will have a different rhythm to their trading and some people will be trading twice as often as others, that’s perfectly fine and you should find your own pace. But the thing to watch out for is if you start trading too often, out of boredom or because you’re chasing an unrealistic profit target or goal.

Obviously, setting yourself goals is important but people start to give them too much importance. They start focusing on whether they hit their target over the last week or the last month. But they forget that everybody has a bad week or a bad month here and there. Even most successful traders have one or two months where they lose overall. Not that they fail to hit their goals but they lose overall during that month. And yet, when you look at their balance for the year, they’re making great profits.

Those traders are the ones who have managed to rein in their trading out of boredom or desperation, they’ve managed to focus on their system and – whether they win or lose – they’re making good trades time and again. If you can do that, over time you will get to the point where you aren’t relying on having a good trading day to be in a good mood because you will have realized that your trades from today don’t affect your score for the month or for the year. Once you know that your next trade or even all of the week’s trades will not affect your performance over the long haul, you can get some emotional distance between the trade you’re going into or the one you just exited and how you feel about yourself and your trading. Ultimately, that distance and perspective is going to be good for your trading too, and probably for your bottom line.

Trading by the Numbers

Understanding the numbers that underpin your trading is probably the most important thing in forex trading or any other kind of trading. If you don’t understand the numbers behind trading, you’re not trading, you’re gambling. And not only are you gambling, but you’re also gambling without knowing the odds.

Understanding the numbers means having a good sense in advance of what kind of win/loss ratio you can expect from the system you’ve developed. Of course, the market being what it is, you’ll never know fully but with a robust testing regimen, you should have a good overview of what to expect.

Coupled with having an estimate of your win/loss potential calculated ahead of time, you should also have carried out a risk to reward assessment. That means that you should have worked out how much you are willing to risk for a given profit, taking into account such factors as the size of your portfolio. Here you can also factor in such things as your profit factor (how much you gain compared with how much you lose) or the Sharpe Ratio.

Before you start trading in the real world, you can take your system for a spin through a simulator and get all these numbers. Until your system is reliably producing positive numbers, you’re not going to be a successful or winning trader. If you take a system that doesn’t produce positive numbers into the real world, there is no other way o putting it than you are going to lose money. That’s a fact.

Once you’ve tweaked your system to the point that it produces positive numbers in simulators and demo accounts, you’re ready to give it a run-out in the real world. But if you think that’s where the learning curve ends, you’ve got things backward. That’s where the real learning begins.

Evaluation and Evolution

In a sense, being a trader is about always being honest about your past mistakes so that you can keep on learning from them. In the same way, it’s important to develop and design a system that reliably produces positive outcomes and that you test that system thoroughly before you let it loose in the real world, you will also want to go back and reanalyze and reassess that system so that you can keep improving it. If you can keep adapting and evolving, you can continually improve your skills as a trader and go from success to success. As with anything else in forex trading, this is much easier to say than to achieve. It takes work, organization and it takes an investment of your time but the rewards can be handsome. 

You’ll never learn from your mistakes if you don’t know what your mistakes were. So, the first step is to get in the habit of keeping a trading diary. This doesn’t have to be anything too fancy or complicated, just a record of your trades and just a short note on what your reasons were for going into each trade. These days, people don’t bother to do that because the platforms everyone is using to trade these days will keep a record of every trade. And, to be sure, that’s a good starting point. However, you will find that you’re looking back at a trade you made at the beginning of last year and that your system has changed in the meantime and there’s a good chance that you won’t be able to remember what criteria led you into that trade. That’s why keeping a note for each trade is a really valuable tool. Also, it will help you to stay out of emotional trades because you’ll find it harder to justify these to yourself and your trading diary.

If you’re able to keep a regular trading diary over a given period – say the first six months of real-world trading – you will be able to see the benefits as soon as you look back over that period. Even after just six months of trading, you will be able to look back at your past performance and spot a multitude of mistakes that you can learn from and eliminate. But more than that, you will be able to see patterns in when and how you trade. You might surprise yourself and see that you trade more rashly following a run of losing trades or that you are more focused and successful at the start of the week as opposed to the end of the week where you get sloppier.

There’s probably a huge number of ways to keep a trading diary or to track your trading – some people have complicated spreadsheets with charts and ratios, others keep physical diaries they write out by hand. But the key to successfully tracking your trades so that you’ll be able to go back and evaluate your outcomes isn’t how you keep the diary or how you organise your records. The key is being honest with your future self. If you’re prone to bending the truth (even if it’s by omission) when you keep your records, you won’t be able to learn from your mistakes as effectively. And it’s easy enough to do, especially after a really big losing trade or a run of losing trades when the temptation is to say you stuck to your system and that it was just the whims of the market that meant your trades didn’t pan out. But, if you’re honest, it might reveal that you had traded rashly or that you oversized a stake in the hope of making up for past errors. When future you looks back on that, the learning experience will be more valuable than any gain you could have made from that rash trade.

Applying R&D

If you want your trading to be a system that is undergoing a constant cycle of evolution and improvement, one way of achieving that is to constantly be running testing. All experienced traders will talk about testing until they’re blue in the face but, when you’re just starting out, you tend to hear that and understand it to mean that you should test all the components of your system and your system as one functioning whole. And sure, you should definitely do that. But the successful traders out there will constantly be testing something. Whether it’s a new indicator they came across or a slightly different variation on their current system. Or sometimes a radically different approach that they’re just taking for a spin in their demo account to take it apart and see how it works.

You can think of yourself as a part-time trader, part-time R&D specialist. Because while you’re trading with your system in the real world, you can also tinker with a host of tools or other systems in demo accounts and simulators. This way you’ll keep the learning centers of your brain ticking over and avoiding getting stuck in a rut. But also, this will enable you to keep your trading system up-to-date and always finding new ways to do things better and better.

Parting Shots

The best and most successful traders out there are controlled, calm under pressure, disciplined, consistent, and rigorous. Very few people out there manage to be all of those things naturally, while they’re still dreaming of a career in forex trading. For the rest of us, it takes time, diligence, hard work, and a seemingly unending cycle of learning from past mistakes and making new ones to learn from down the road. But if you know and understand that going in, you can also do a few relatively simple things to make life easier for yourself. Or, better yet, make it easier for yourself to do the hard things that are indispensable if you want to make forex trading work for you. Because, at the end of the day, your only real job as a trader is to mold trading into something that makes your life better.

Forex Psychology

BEWARE: These Excuses Could Be Holding You Back from Dominating in Forex

If you search “forex trading” on any search engine, you’re going to find a lot of frequently asked questions from users that doubt trading is profitable. For example:

  • “Is forex a scam?”
  • “Can you really make money trading forex?”
  • “Is the forex market illegal?”
  • “Is it really worth becoming a trader?”

As you can see, a lot of people online seem to feel apprehensive about opening a trading account thanks to online myths and speculation or stories about traders that have lost money. Sure, it is possible to lose money and there are scammers out there, but you shouldn’t let these common excuses keep you from trading:

Excuse #1: I Don’t Have Money to Invest

Many people want to start trading forex, but they imagine that the luxury is reserved for those that have a great deal of money to invest. In reality, you can get started trading on a demo account for free. It’s also possible to open a trading account with only a few dollars through a wide variety of brokerages, so you shouldn’t let a lack of money keep you away. Of course, you should expect to be limited to a micro, cent, mini, or standard account if you only have a small investment, but these accounts are actually beneficial for beginners. These accounts might not offer as many perks as elusive VIP accounts but they will allow you to trade, hone your skills, and make profits, nonetheless. Just remember not to invest more money than you can afford to lose – if it’s meant to pay bills or live on, don’t deposit it into your trading account. 

Excuse #2: I Don’t Have the Time

It’s true that some traders sit in front of their computer screen constantly entering and monitoring positions, but you don’t have to do this. In fact, there are many different strategies that benefit part-time traders that have other things going on in their lives. Swing trading is one example where you enter trades and let them go for days or even weeks in some cases. The flexibility of being able to trade from any device with an internet connection even makes it possible to monitor your account while you’re on your lunch break or from your child’s soccer game. It might seem like another annoying thing to keep up with, but it’s worth it when you think of how much money you could make if you carve out a little bit of time each week for trading. 

Excuse #3: It’s too Risky

Forex trading is an investment, meaning that there is risk involved, not unlike other investment opportunities. You really do have to give money to make money, but you shouldn’t think of trading as gambling. Before you ever start, you should have a good concept of what moves the market and how trading works. Then, you’ll develop a trading plan that tells you what to look for when it comes to entering and exiting positions, along with plans for managing your risks, and so on. All of this is designed to keep you safe if things go against you, although they don’t eliminate the risk of losing money entirely. Still, with a solid trading plan and background knowledge of what you’re doing, your risk will be significantly reduced. 

Excuse #4: It’s too Complicated

This excuse seems to come from people that just don’t want to invest the time into learning to trade. Sure, there are a lot of things you’ll need to know about, like terminology, how to work a trading platform, factors that affect prices, trading psychology, and so on. However, it’s wrong to say that these topics are complicated to learn. All of this information can be accessed online for free and you can even try learning through different resources if you have trouble understanding a certain topic. For example, some might learn better by reading articles, while others might prefer to watch videos. Some authors can also do a much better job of explaining concepts than others, so there’s no reason to give up.

Excuse #5: It’s a Scam

This myth likely comes from the idea that most brokers are scammers just waiting to steal your hard-earned money. As we mentioned earlier, there are some scammers out there, but there are a lot more reputable brokers than there are scammers. If you want to ensure that you’re opening an account with a trustworthy company, try following these steps:

  • Check to see if the company is regulated. (Double-check that the listed regulation company exists and check for a license number, as some scammers will post pretend regulation details. Also, if you’re located in the US, you might have to go with a company that isn’t regulated.)
  • Look at the broker’s website. Does it tell you in detail about the accounts they offer, available funding methods, applicable fees for funding, spreads, and commissions, etc.? Or are you left with more questions than answers? A detailed website is a sign of a good broker, while a lack of information suggests otherwise.
  • Read through the broker’s terms & conditions to ensure that there aren’t any crazy policies or hidden fees, like inactivity charges.
  • Look for customer reviews online. More popular brokerages will have a lot of feedback, while scammers may not have any at all or everything will be negative. Remember that some traders that have lost money at their own fault might leave bad reviews regardless.
Forex Psychology

Understand People and You’ll Understand the Markets

Every day the markets are more complex, more international, more liquid, with more people and robots operating in them. All this makes the current markets difficult to understand and above all, they are changing, but the people, the mass, and their way of acting change in a much slower way than the market.

A while ago and from this statement I thought that the best way to operate in the market would be to understand as much as possible people, if I achieved this I would be able to understand the market for a longer period than with any indicator. Today I want to show you some examples of how to understand people to understand the market, I do not say that this is the absolute truth, but it helps me a lot to understand the functioning of the market.

I have once told you about the volume and how to interpret it along with the price to discover how people move, today I want to take one more step and talk about how to create a stand or a resistance.

Technical analysts rely a lot on supports and resistances, but 95% have never thought about what these formations are or why they occur. Skeptics take the opportunity to say that seeing how the price bounces 4 times at the same level is the result of chance, if we apply statistics we will see that it can not be the result of chance, it is as if you play the lottery 4 times in a week, And so week after week, it can’t be a coincidence.

What Is a Stand or Resistance?

Visually it is the price range where the chart has trouble to pass, if you struggle to cross up we talk about price resistance and if you struggle to cross down we talk about price support.

Further deepening the resistance is that price range where we find a lot of offers, preventing the price from going up. Support is the area where there is a lot of demand, preventing the price from falling.

Why is a level of support or resistance generated? I will explain the logic that I find in these movements.

In the areas of resistance we find different interests:

  • The trader wants to sell because he believes there is a resistance and expects a price drop.
  • The trader who had bought below and arrived at the resistance decides to sell their purchases.
  • Traders unrelated to all this buy/sell for other reasons.

So roughly we have two groups willing to sell and another that we don’t know if will buy or sell. People who operate knowing the resistances and supports will never buy right under one, will always expect their break.

After 3 attempts to break the resistance we see how in the fourth attempt it succeeds, the price quickly crosses the resistance zone with many purchases, now we have the following groups of traders:

  • Traders who sold and put their Stop Loss right on top of the resistance (I remember in this case the Stop Loss is a buy!!!)
  • Traders who sold and hold a negative position are distressed and feel cheated by the market.
  • Traders who had their purchases up the resistance and have now entered the market.
  • A minority that sells for some obscure reason unknown to me.

In this new price zone, most want to buy and few want to sell, this creates the effect of a very fast price rise when resistance is broken. As you can see it is not a coincidence that happens, if we think about the different traders it is logical that breaking one of these zones will trigger the price so much.

Finally, there are the pull-backs, when the price returns to the resistance and uses support. At this time we have the following traders:

  • Distressed traders who sold and now see the opportunity to exit the market with 0 pips, make purchases and turn resistance into support.
  • Traders who know that there was resistance there and now take advantage of it as a support. They make more purchases.
  • Traders who want to sell would do so in case they break the new support, for now, they do not act.
  • As always there is a group of traders who buy/sell for other reasons and are foreign to the whole party.

From this moment on you can apply the same rules for the following levels of support and resistance. I hope it will help you to understand a little more that is the price, why it moves and so you can take advantage of the market.

Forex Psychology

Mistakes and Fears of the Modern Trader (and How to Correct Them)

Probably a lot of you know how to drive. If you don’t drive, surely you can find some similar perceptive-motor technique that you have ever mastered-cycling, skating, swimming, etc.- If you remember the first time you tried to master the technique, you will discover many things that you had to attend to at the same time.

The hands did several things -to handle the steering wheel, the gear lever, the turn signals, the lighter, the radio…at the same time they had to pay attention to what the feet were doing, responsible for a complex task in which space-time coordination was fundamental -accelerator, clutch, brake-. All this complex network of coordination was only the beginning of the task since outside there were the keys to “good driving”, the awareness of traffic, the state of the road, traffic lights, pedestrians…

Narrated in this way seems an “almost” impossible or at least extremely difficult task, and yet, with the passage of some months and the accumulated experience, what does that task become?

The key to such a change in effectiveness, in performance, in dexterity for the development of the task is, as you may have concluded, in “experience” and in an appropriate process: “the path of learning”. It is not a skill that requires a very sophisticated technical qualification, rather they are simple gestures “accompanied” in a “harmonious” way. A beautiful and precise dance -sure that once they have felt it, the publicists of BMW know it- in which everything “flows” without resistance, and that makes us “enjoy”.

The easiest way to acquire any skill is to practice small fragments one by one, just as we learned the task of driving a car, what is needed is to organize the task into small elements or parts, in order to practice each part to the point of turning it into an “automatic”, “effective”, “unconscious” activity, this allows us to devote “attention” to other possibilities, other components of the task. Subsequently, we can practice these new elements until they also reach the same category of automated motor pattern to which we do not have to pay any conscious attention.

When I met Alfredo Rodriguez, I was immediately struck by the enormous amount of perceptual resources available in the task of trading, even when it came to speculating on a 1 min chart. On a product like Dax. For my work in the virtual consultation, I have had the opportunity to know many “styles” of trading, many tempos, many ways to live the pressure or fear.

We have worked for a long time on these elements, always trying to answer a key question:

What are the right tools to achieve these automatisms?

How to get an approach to trading with plenty of available capabilities?

How to enable the existence of surplus resources that help us maintain flexibility and mental agility, at levels that allow us to make appropriate decisions in tenths of a second?

We have set up a “virtual consultation” where, as a “laboratory”, our clients “investigate” the essential bases of its characteristic structure, an unavoidable preliminary step if we aspire to the creation of “custom” instruments, individually optimized. Unfortunately, there are no “universal recipes”, simply because “control”, “stop”, “fear”, “risk”, are words that take their content from the deep roots of the human being, each of us recreates them and gives them meaning by always drinking from the source of their history, of his fantasy, of his own existence.

G: Could you list the mistakes you feel you made?

X: Precipitation, entering the market without analysis (of any kind), not holding the position -that is to say, getting well and rushing into closure-, in general when I am inside I become obfuscated. Lately, I can’t stand anything, for or against, but much less for.

G: You go in compulsively?

X: Yes, I often enter by entering, I get very nervous. The worst thing is that before the losses increase the trade and everything is even worse. Now I have started taking Seroxat, I had never taken antidepressants until now, I was used to solving things differently.

G: Could you look for an image or a descriptive metaphor of how you feel?

X: I’m like a mouse, which plays a cat…

G: Perfect, keep developing that image, how is the game? , how does it develop? , where is it going?…

All of you can imagine the possibilities of a mouse facing a playful cat and understand what is the most likely development of such a game. From our point of view, Mr X’s trading will be marked by this way of “feeling” the market, his subjective “perception” of trading creates -perhaps unknowingly- a whole “script” of what happens and what will happen until that script is modified.

That unspecified “text”, that way of living the market, the system, the times, the minutes with which one works, the indicators and signals are chosen, absolutely everything will be “catalyzed” by this special way of “seeing” and “feeling” markets.

G: It’s very important that we understand your “script,” what the spurious elements are. We have to check your “backpack” and identify the heavy elements that are not absolutely necessary and that activate those self-destructive “messages”. Look in your memories for a message repeated by your parents, friends, family…

Y: I remember that many times they told me not to try hard in the studies, I was not going to achieve anything…

G: How does that make you feel?

Y: Well, I think it influenced a lot that I didn’t try hard in his day, today I regret not having done it, but it’s already late… Thinking about this that you are proposing to me, I perhaps looked in the markets to show them all that they were wrong, that I am worth it, that I can do great things like for example make a lot of money in this.

G: Some kind of challenge?

And, Yeah, something like that.

G: And you think it’s the most correct position to build a profession? To do it out of spite?

Do you think resentment and anger will help you build a “healthy” role?

Y: Well, now that you mention it, I’m sure I don’t… In fact, I threw myself into the adventure without knowing anything of analysis, or means, indicators, anything at all. I was going with the bald price go. Talking to you gives me the feeling I started the house off the roof.

G: Why do you think that 90% of the people who start with this leave-ruined-the first year? There is a superb gesture in that, people come with the whims of a winner, believing that without training and without personal work can beat people who have been living on this for 30 or 40 years.

And: It is true, sometimes we sin of too naive in that sense, in that gesture, we are signing our sentence of ruin.

G: In what you were saying before the “rebound”, that “these are going to find out what I am capable of”, they take you to a somewhat “sinister” place. Your professional role as a trader is joined by an “immense” and heavy slab that you carry inside. That doesn’t depend on the market but on yourself. It’s an added challenge.

Y: I think I understand, it’s like I have the enemy at home.

G: That’s exactly it. On many occasions, there is an internal struggle with maternal or paternal messages, which is not explicit, but which is “marked” with fire in a very deep place of your mind. You end up living to “fight” with that message. Did you see the movie “Leolo”?

And, No, I haven’t seen her.

G: One of the protagonists is mistreated by a group of boys. From that day your life becomes a tireless race to make your body a perfect machine, weights, exercises… through tireless work you get a spectacular musculature. Many years later, already with a tremendously muscular body, he meets the same group of guys again… Do you know what happened?

And, He took revenge on them, I suppose.

G: They poked him again. His body was huge, his muscles seemed powerful. But his inner “message” remained the same. It was not an external force problem, but an internal one.

Y: I understand. And what can you do to correct those scripts?

G: Here we are, the first two exercises that I send you, are aimed at unmasking these messages. As you can see they are very simple exercises of execution but you will discover that they are very powerful if you respect the minimum rules. Constancy and patience.

Recently, I had the opportunity to work with a trader that I call “brilliant” in his technical training, in his analysis, in his way of reading the markets. His problem is that he “fails” over and over again on procedural tasks. After an excellent analysis he decides, for example, that he has to adopt long positions, and when entering the command in the TWS, he opens shorts, when he realizes, he enters a state of confusion that blocks him and prevents him from closing the open position by mistake, That makes it maintain a position that accumulates more and more losses.

When we worked on this problem, something obvious became clear to the naked eye, we are simply “boycotting ourselves”. We know how he does it, the most urgent task now is to know why?

Our proposal is a multi-level work:

At the deep level: give “permissions” to all internal folders that may be impeding good performance in the market. Detect the “gestures” and “routines” that hinder the development of a good “role” of trader -impatience, lack of discipline, impulsivity, fear, blockades-

At the technical level improve market analysis and advantageous positioning resources. It is about starting a path that should not only lead to knowledge of the markets but, more importantly, to self-knowledge. The market is a great teacher if you can hear it.

Forex Psychology

Forex Success: It’s All About the Winning Mindset

I have been wondering for some time now what role does our mind-brain play in trading? And I keep asking myself that because rivers of ink are written and written about the emotions we have when it comes to operating in the markets. And especially because I’ve seen with my own eyes newbies who lose their money because they put their sights on the anxiety of winning and earning money and do not prepare mentally for the journey you are thinking of starting.

I think there is a lot of confusion in this because if we have a fortified mind and extraordinary mental strength, that is excellent, those emotions that everyone talks about (Psychotrading) will be minimized to the minimum power or expression. I believe that all those emotions that we face are produced because we have a weak mind, a mind that has not been trained for the new challenges that we will face. What I am saying we can see in the athletes when they are going to hold the championship of their life they concentrate to face that great challenge. And how many times have we heard concentration…concentration…


And how many times have we heard that Rafa Nadal has a privileged mind, that even despite losing in some match he made a comeback. We must therefore have a prepared, fortified mind. A mind capable of assuming a losing point, that is unaffected and can continue to play as if it were starting from scratch.

A mind that, when it wins, continues to strive and give its best, as if it had just started the game. A mind, constantly resetting itself, a mind prepared to assume a loss or a victory without emotions dominating and influencing it.

“This possibility of self-observation when we prepare to operate in the markets and live those emotions that trap us is what allows us to detect thoughts, emotions and mental patterns that disturb or prevent us from getting what want.”

But the mind not only has the ability to observe itself, but at the same time it can regulate itself, modify thoughts, reduce or nullify emotions and modify behaviors, but if it does not regulate and train itself, can end up falling prey to the brain’s emotional system and losing control. Therein lies a key ingredient for success, applicable to Trading, and to other professions and aspects of our lives. Needless to say, this is totally opposed to human behavior and this is where we have to work and a lot.

“The brain controls all aspects of our life and today we can visualize more clearly the advantages and disadvantages of the mind and brain.”


So if you have in your mind the winning patterns, clear and constantly visualized will help you to earn money and not lose it. Normally, we are influenced by everyday events that happen and they can change us the whole day. Let’s remember that phone call, that email, that conversation that left us somewhat dejected and made the rest of the day have another color.

It is very difficult to avoid this, we are not robots and things that affect us. So imagine something as emotional as earning or losing money, where other feelings are also mixed, such as ego, frustration, desire for revenge, anger,… it is an explosive mixture of emotions, which, it is not at all simple, separate yourself and continue there, without any influence, either positive or negative.

Rafa Nadal says in his book:

“Being focused means doing at all times what you know you have to do, never changing your plan unless the circumstances of the game or the game change in such an exceptional way that they justify the appearance of a surprise. But in general terms, it means discipline, it means restraining yourself when the temptation to gamble arises. Fighting that temptation means having impatience or frustration under control.”

Having the emotions controlled, within oneself and without them activating a response, neither in your external behavior but also in the interior, is key and means that the emotions should not make you change your behavior and if possible, nor your mood. Not an easy task.

In forex trading, if you want to know your odds you must know your trading system very thoroughly and that is only achieved after thorough research on it. My advice is that you set yourself qualitative, never quantitative objectives and the former will take you to the latter and a much more direct and satisfying path.


I remember in the past, in the attempt to achieve this longed-for mental discipline, recording myself with the computer camera. I wanted to see my expression when I lost an operation when I won, what my eyes said, my gestures… it was revealing. I discovered that everything affected me, when I lost an operation, sometimes my eyes became sad, I felt frustrated and other times, my expression was of anger and desire for revenge.

The first step to achieving that control is to know yourself. What seems obvious isn’t so much, let alone when your money’s at stake. Well, that’s the first job to do, getting to know each other, how do you react to a losing operation? Do you get scared? Or, perhaps, are you one of those who want revenge? Perhaps that answer depends on why that operation has been unsuccessful. And when an operation wins, do we get euphoria and become more confident? Needless to say when we win, for example, 300 € in an operation and then we lose them after 15 minutes.

Let’s analyze, study our behavior, be aware of what affects us, and why. This mental work acquires another dimension that is what makes the difference between a great professional tennis player or one who does not achieve success in this profession. Or between a successful trader and a loser. And this mental work will make the difference between getting to consistency or not. That’s right, it won’t be the system, it won’t be our enormous know-how, it won’t be the development of a trading strategy. No, it will be our mind. Obviously, all of the above are necessary ingredients, but not sufficient.

If we have a great system, but a weak mind, we will not succeed. If we have a simple system but a prepared mind, we can come to consistency. Let’s work in this direction, videotape ourselves while we operate, write in an emotional journal at the end of our intraday operation, explain to ourselves everything that happened, as if we were telling someone, Let’s go for a walk or a sport and let our minds clear and speak to us… Do you think Rafa Nadal was born with that winning mind?

This mental work is not a waste of time, believe me, it is the missing piece in our puzzle to get consistent trading.

Forex Psychology

How To Make Forex Trading Comfortable?

Comfort in trading has several aspects, one is when we have a good trading practice, a system, or a strategy, yet we cannot find time for it to fully get effective. This is caused when our trading developed when we were just studying, for example, we had more time to devote to trading. After a while our lives could change, what once was comfortable now is a chore or we simply have more pressing matters. Certainly, traders found in this position are not professionals, trading is just a hobby or some other form of secondary income for them. It is rare to see professional traders move away from their careers if they are successful. Some things are out of our control and change our lifestyle, however, the title question does not relate to these traders. Part-time or hobby trading can still be profitable but how to make it comfortable just depends on each trader’s personality and lifestyle. 

If you value your time and do not monitor your trades yet still have a very good trading methodology, one solution could be to change your target timeframe. Starting from H4 and up really makes a difference in how much screen time you spend each day. Unfortunately, if your strategy was based on a lower timeframe, high-paced trading like scalping then it probably will not work on higher timeframes. Better try to create an Expert Advisor for it. If your developed trading style tolerates other timeframes, you may still need to have some adjustments before the transition. The daily timeframe, for example, does not require more than 30 minutes of management time, it is usually done once the day session about to end. Whatsmore, you do not even have to monitor what is going on during the day. This trading style is one of the most comfortable provided you have a strategy that is also adaptive. 

There is one more solution for cases like this, a more popular one, although established traders might be skeptical about it. It is an automated trading solution. Automation is not always possible, especially if your trading method is relying on subjective price action decisions no robot could replicate. Pure technical trading strategies that rely on indicators and exact thresholds will not have any problems making them automated. On the other hand, complex strategies may be very expensive to automate. Now, if you do not have coding skills you will need to decide if employing a coder is worth the effort. Also, consider you will probably have additional costs establishing a VPS, any additional work for the updates to the code, and unforeseen errors. Scalping and other high-frequency trading are often automated, for obvious reasons. 

How we can make trading more comfortable is probably asked once we cannot keep up with trading emotionally and even physically. And these situations are very closely related to our trading performance, responsibility, and high-frequency trading. This is a more common problem and another aspect of uncomfortable trading. Let’s say you have your first profitable strategy, you have perfected it and made consistent progress. Now it is time to put it to work with real funds. It is completely different psychologically right? Because you care and stress about the outcome unless you like that kind of excitement, you are out of your comfortable trading zone you have enjoyed while demo trading. There are so many ways to overcome this, the simple solution is to just keep it up without messing with your strategy and in time you will be back in the zone. Be confident you have something that works first, or you will take double hits when you start losing.

Another way is to have attention distractors. Have something to do to keep you busy while the trade runs. Create obligations that keep you away, like sports or classes. Depending on how “cold” under pressure you are it will become a routine practice, the money just becomes numbers. Interestingly, some traders completely cover the balance and P/L line even though they are experts. As a trader, you will have to face these issues and there is no way around it. According to experts, when they switch to a high amount of capital they were out of comfort zone, when they received even more money from others, it is another level of pressure. So, even if you overcome this stress once, it could come back again. 

Trading is a battle with your emotions and the markets will play with them. It will drive you away from trading if you do not have a strong anchor. Now, even the best of strategies will not work if you constantly get emotional about decisions you made and are about to make. When you start out, know your expectations about a particular strategy will get you disappointed. You will need to work for some time before you get some results out of your demo trading. Get used to failing, start over, and fail again process. Just take failures with a good attitude, think about what went wrong, analyze, test new things and rules. It will be just a matter of time when you stumble on a winning method. 

Getting out of your reasonable thinking and into the wild emotional decision making is when you do not have strong trading anchors: you do not have a developed plan, how much you risk per trade, routine, or not a clearly defined strategy. Trading without these is not only uncomfortable but also is not going to get you anywhere. There is a simple solution to this, do not trade with real money, even the one you can afford to lose before you have a defined approach to what you are going to do in every situation. Markets are chaotic, going in blindly is a great way to lose. Have a strict plan with optimal risk allowance to endure some losses before good trades come in.

Analyze the market with good tools/mechanisms and stick with them until you are sure they do not work. Then try new things until your complete trading strategy has all elements aligned – your money management, plan, toolset, and you are ready to go live. Some experts advise going live with the money you are ready to lose, just so you can stay in your comfort zone. Others want you to be ready to put in an uncomfortable amount. The reason is, of course, to get you used to the responsibility and the stress. Your strategy should not put your account in danger since it is based on long term endurance, however, you will make better progress in becoming comfortable with any amount as there are fewer surprises markets can throw at you. 

A simple recipe for getting comfortable does not exist, there is no drink or a remedy to run away from this. Whatever you do, great performing strategy or not, you will face your dose of stress. However, there is a difference in how you face it. You can have faith in your system as a channel for stress. That faith is as strong as the amount of work you put in and long term results. Without this foundation, you are simply going to be uncomfortable all the time for various reasons, and this probably is not just about trading, but how you approach other problems as well.

Forex Psychology

Tapping Into Mind Power for Ultimate Forex Success

Becoming a successful forex trader can be attributed to many different things, from higher education to dedication, money and time invested, available resources, and so on, but one thing remains the same – success starts with you.

From the very beginning, you have the choice to enter the market with a positive mindset and reachable goals, or you could speed into trading with little experience and negative thoughts. Even with everything else that trading entails, your attitude can make or break your trading career, so it’s important to ask yourself whether you’re on the path to success, or if you’ll soon be packing your bags along with the countless others that have failed. 

The buying and selling of foreign currency online is often considered to be a recreational activity that is driven by the trader’s performance. In many ways, traders can be compared to athletes because of the determination that trading involves. Athletes also spend a lot of time training, often with coaches or trainers, because it increases their chances of success, even though it doesn’t guarantee victory. Forex traders can improve their chances of success in the same ways by spending time researching, chatting with forex trainers and coaches, attending webinars or seminars, practicing on demo accounts, and so on. 

The following suggestions can help you master your trading thoughts and channel success in the forex trading actions that you choose to make:

Believe in Yourself and Become a Beacon of Positivity

If you want to become an expert trader, you need to believe that it’s actually a reachable goal without doubting yourself. If you say negative things about yourself out loud, you’re putting that negative energy into the universe, while positive thoughts do the opposite. Your perception of yourself is important when it comes to managing complicated emotions that can spring up when you’re trading – after all, trading often brings out feelings of regret and self-doubt, along with happier emotions like excitement. If you have a positive outlook on trading, you will have more control over your emotions and you’ll be less likely to beat yourself up over mistakes. The great news is that everyone has the chance to become a successful trader if they will just take advantage of available resources and work hard.

Here’s a tip: try writing down 5 or 6 positive statements about yourself each morning to get yourself thinking in a positive direction. 

Act Like a Professional Trader

If you want to acquire the same results as a professional forex trader, you have to learn to think and act like one. This means you can’t only focus on making money. Instead, you need to set short-term and long-term goals that focus on improving yourself as a trader. If you think this way and take steps to become a smarter, more savvy trader, profits will follow. You’ll also want to make sure that your goals are realistic, so don’t tell yourself that you’re going to make a million dollars by a certain date, as this is highly unlikely. Professionals don’t sit around feeling regretful over losses, they look back at past results and figure out what went wrong to try to keep it from happening again. 

Whenever you are about to make a trading decision, simply stop and ask yourself “what would an expert trader do in this situation?” If you keep this mindset, set realistic goals, and keep track of your results in a trading journal, you’ll be behaving like a serious forex investor

Don’t Consider Failure to be an Option

Once you make the decision to become a trader, it’s important to promise yourself that you won’t give up in spite of possible losing streaks or bad days. Losses are inevitable, but creating and sticking to a solid trading plan will help you to bring in as much profit as possible while limiting the losses you do take, so be sure to invest an ample amount of time into this plan. Even a blown trading account isn’t a suitable reason to give up because you can always invest more money and start from scratch. You live and you learn, so don’t let yourself give up over something that can be corrected. 

To get the best perception of your trading results, you should keep a detailed log of every trade you take in your trading journal. Be sure to log information about emotions you were feeling, the reasons why you decided to enter and exit trades at the time you did, how much money you made or lost on each trade, and so on. Later on, you can look back and find patterns or notice details that you just wouldn’t catch without having written it down. Your trading journal will help you achieve success because it can point out things that you should or shouldn’t change about your plan while helping to shed light on some of the hidden issues you may be overlooking.

Keep in mind that you have to become conscious of problems in order to take the proper steps to change. Everyone has the keys needed to become a successful forex trader, but what makes or breaks us is whether we believe in ourselves, make informed decisions that mimic those of an expert, and become aware of our mistakes so that they can be fixed. If you learn to think and act the right way, you’ll find yourself on the true path to trading success.

Forex Psychology

Trading Psychology: How to Manage Your Forex Trading Fears

If you’re human, there’s no doubt that you’ve worried or felt anxious about things that affect your everyday life from time to time. This is a completely normal human emotion that often affects forex traders as well. When our hard-earned money is on the line, it can feel impossible to avoid becoming worried about losses or to generally doubt that we’re on the correct side of the market.

Every trader has been there at some point, regardless of how successful they seem to be. After all, we’re all human, and none of us can be a 100% emotionless robot trading machine (wouldn’t that be nice!). Although worrying about these things is normal, it can become overwhelming, especially for those that are prone to over-worrying in general. This is why it’s important to learn to manage your anxiety and to find ways to use it to your advantage so that you can avoid the negative consequences that come with it. After all, that’s why we’re here. 

The Reason Why Fear is a Problem for Traders

Every forex trader makes the decision to open a trading account on their own, yet the fear of trading is one of the most common trading-related problems out there. So, what gives? 

Consider someone that is getting pulled over for speeding. Initially, they might have been enjoying the breeze, in a hurry, or they may have assumed that they wouldn’t get caught. Yet, the sinking feeling sets in as soon as they see the blue lights behind them…then they start thinking of the headache to come with speeding tickets, court, or whatever consequences are coming. This is similar to how it works with traders. They feel excited and aren’t as worried in the beginning, but the consequences and potential losses that can affect them once they’ve opened their trading account suddenly come into play once everything becomes real. 

When fear manifests itself in forex trading, it can cause us to make mistakes like pulling out of a trade too early. For example, a trader might do everything right and set up a trade based on solid analysis and facts, then they hear an unfounded rumor, and rush to exit the position. In the end, the rumor never comes true and the trader could have simply stayed in the profitable trade. This isn’t just a one-time occurrence – many traders find themselves in a never-ending cycle of making bad trading choices because they allow themselves to become overly anxious. Another way that anxiety can manifest itself is by keeping traders from entering positions altogether. Obviously, if you never enter a trade, you’ll never make any money, while you’ll walk away with less money if you exit trades too early. 

How to Overcome Your Trading Fears

The good news about fear is that a healthy dose of it can be helpful to traders in the right context. It’s important to consider rumors you hear, to be prepared in case things do move against you, and to pay attention to news events in case things go sour. If you jump into the market with too much confidence and you don’t pay attention to these things, you’ll be worse off than you would have been if you were too careful. It’s important to find a balance here so that you can make the best decisions.

One of the best things you can do is to figure out what it is you’re really afraid of. For example:

  • If you’re afraid to lose money, you could take steps like limiting the leverage you use and using strict risk-management precautions, such as setting a stop loss on every trade. If you know that you won’t lose much money if things do move against you, you’ll feel less anxious and will be less likely to rush to exit the trade over rumors or self-doubt.
  • If you’re afraid to lose profits on an active winning trade, you could make sure that you’ll walk away with something by breaking even or taking part of your profits once the market moves in your favor.

Whatever your fears may be, you can take steps like the ones above to help take some of the worries off your shoulders. Even though it is human nature to feel anxious when you aren’t sure of the outcome, keeping a positive mindset, trusting your trading plan, and taking important steps to overcome your trading fears are some of the most basic steps you can take to overcome trading psychology. We’re all prone to being fearful of certain things in life, but it is important to learn to keep your emotions in check while you’re trading so that they don’t wreak havoc on your profits.

Forex Psychology

Transformation of the Trading World Through Jack Bogle ETFs

Mahatma Gandhi said that when you try to change the world first they don’t notice you, later they laugh at you, and then they attack you, and finally, your enemies embrace the new world you have created. When you try to change the world first they ignore you, then they laugh at you, then they attack you, and finally, your enemies embrace the new world you have created.

This pattern is repeated in revolutionaries who have transformed entire industries, like Henry Ford did with automotive or Steve Jobs with telephony and music. Similarly, Jack Bogle transformed and democratized over four decades one of the most elitist and restrictive industries in history, that of asset management. Over the course of four decades, Jack Bogle transformed and democratized one of the most elitist and restrictive industries in history, that of asset management.

On January 16, John Clifton Bogle died at the age of 89. Jack, so was he called, was little known outside the investment industry. However, its impact on savers around the world has been far greater than that of any other private or public initiative: The revolution that Bogle started 40 years ago means saving some $155.75 billion a year to investors around the world (see Annex 1 at end of the article).

Saving around $155.75 billion a year to investors around the world.

Throughout his unexpectedly long and rugged life, Bogle managed to democratize the exclusive asset management industry, dominated by large banks and high barriers to entry, to make it a service available to everyone regardless of the size of their heritage.


Bogle didn’t have it easy from the start. His family was ruined during the Great Depression of the 1930s, shortly after his birth in 1929. The lack of opportunities during the Great Economic Depression of the 1930s caused his father to fall into alcoholism, which eventually led to his parents’ divorce. But despite the difficulties he had as a young man, he managed to get into Princeton University on a scholarship.

When he remembers how hard his youth years were -combining temporary jobs with studies-, Jack joked that he felt a certain “pity” for his wealthy and carefree Princeton classmates, for they had not been given the opportunity that he interpreted as his great advantage: to learn to face real problems and to overcome serious difficulties from a very small age. He was unaware at the time, but this ability and attitude to the problems would reveal, two decades later, crucial when the time came.

Its great advantage: learn to face real problems and overcome serious difficulties.

Its first and successful stage in fund management -within the Wellington Fund- coincided with “the go-go era”: the big bullish market of the 1950s and 1960s, in which the stock market rose by an average of 14.5% a year. The years passed and his «skills» as a fund manager began to be recognized, becoming President of Wellington in 1970. It is then that motivated overconfidence as he himself confessed to his great previous success led him to realize a good number of unfortunate decisions. Later, Jack would refer ironically to his “Wellington years” in these terms:

“It was a time when it was easy to seem intelligent.” – Jack Bogle

Indeed, seeking to further increase the profitability of the fund, he incorporated an external manager who excessively concentrated his positions on a few very speculative stocks. Thus, when the first of the two major recessions that would hit the United States in the 1970s hit, the fund lost more than 50% of its value. And when the same scheme was repeated in the next recession of 1973-74, Jack was definitely fired.

It wasn’t a good time to lose your job. In the midst of an economic recession, with 44 years and six children to feed, Bogle lost his job but also became seriously ill. Several heart attacks brought him to the hospital frequently. A doctor who treated him said him in 1974 that he had “little time” left, and that the best thing was to retire to spend «the few years of life that remained» in peace to say goodbye to his family.

With 44 years and six children to feed, Bogle had not only lost his job but also became seriously ill. Several heart attacks brought him to the hospital frequently. However, Jack did not retire, but it was in those extreme circumstances of uncertainty and apparent failure, during 1974, that Bogle had what we might call an epiphany that would eventually change the world of investment in the coming decades.

Influenced both by the ideas of the Nobel Prize winner Paul Samuelson on the impossibility of beating the markets in the long term and by his experience in the damage that produce in the investor the accumulation of commissions in the long term [see Annex 3 below], in 1975 it occurred to him to take advantage of the well-oiled back-office of the manager Wellington -together with the saving of not having to pay this time any manager to select the «best» actions-, to convince the new managers of the manager of his idea; and launch the first investment fund that would replicate the behavior of the market as a whole. Thus, on December 31, 1975, the first index fund with an initial capital of $11 million was born.

First, They Ignore You and Laugh at You

Like Jack, the first index fund didn’t have it easy at first either. The press and the rest of the professional industry considered it either nonsense that did not deserve the slightest attention, or directly a blatant business error that would be studied in business schools as an example of what never needs to be done.

Paul Samuelson was one of the few who appreciated him and recommended him within a few months of his birth (he too received criticism for it, more would be lacking). Indeed, despite the efforts made to market it during its launch, within a few years the refunds began. The fact that the next bullish stock market did not start until the second half of 1982 did not help, again underlining the weight of chance in timing when it comes to launching a business idea, however good it is in itself and well-executed it is.

About to be liquidated for lack of subscriptions in the early 1980s, Wall Street was known at the bottom of Bogle as “Jack’s madness” or “guaranteed mediocrity fund”. Practically no one believed then that a simple rule of stock selection based basically on weighting the index companies according to their market capitalization -as most indices do-, be able to outperform in profitability the sophisticated stock selection strategies of thousands of highly intelligent and prepared managers, dedicated every day of the year to seek and select the best stocks from the thousands available.

Then They Attack You

But as the 1980s progressed, the facts slowly began to prove Bogle right. Private jokes and jokes against him turned into surprise and disbelief on the part of his colleagues. After a decade and a half, its index fund began to rise in the ranking, revealing itself as one of the most profitable among all the funds and investment vehicles available in the United States. Bogle was attacked as anti-American (!) for not promoting the search for excellence in the active selection of the best actions.

Colleagues who made fun of him behind his back couldn’t believe it. What initially began as a footnote anecdote in the economy and investment books, was escalating in impact to generate a heated debate in the management industry during the 1990s. The most benevolent attributed their success to sheer luck. Others directly attacked Bogle as anti-American (!) for not promoting the pursuit of excellence in the active selection of the best actions. Many industry analysts began to say that passive or indexed management was a cancer not only for the financial markets but also for the country’s economy; because by ignoring the process of discovering anomalies in prices by investing in indices, the market would eventually stagnate and lead to a static price for all the shares (an argument which has, incidentally, been rescued again recently). These attacks have continued to be repeated cyclically since then and even today, almost three decades later, there is still debate within the industry about how “bad” indexation is or is not (especially for the interests of the industry, of course).

Many industry analysts began to say that passive or indexed management was a cancer not only for the financial markets, but also for the country’s economy.

In the midst of a debate about whether indexation was good or bad, whether it would continue to work or not in the future, his health problems returned with greater intensity in the early 1990s, forcing him finally to undergo a heart transplant in 1996.

Shortly before the operation and with little chance of survival (again the doctors did not give him much hope), he gave up command of the manager he had created, Vanguard, to his second-in-command then, John J. Brennan. After surviving the operation, not knowing how long he had to live and encountering unexpected friction with the new CEO, he left the Vanguard management. He then created and took over the management of the Market Research Centre that had been named after him since 2000.

Finally, You Win

But his seed had already taken deep roots and the tree, the forest, was already unstoppable. More than four decades after its launch, Jack’s first “fund-madness” (now the Vanguard Total Stock Market Index Fund), which started with just $11 million and was about to disappear, has reached more than $800 billion in assets under management (higher than the GDP of Switzerland and similar to that of the Netherlands). Along with the rest of the funds launched afterward, Vanguard is the second-largest manager in the world (just behind BlackRock) with $5.3 billion (Anglo-Saxon trillions) in assets under management; In the United States, 50% of all funds marketed are index funds (while in Spain they only represent a surprising 1%).

The “Vanguard Total Stock Index Fund”, which started with just $11 million and was about to disappear, has reached more than $800 billion in assets under management (higher than Switzerland’s GDP and similar to that of the Netherlands).

The superiority of indexation when it comes to investing has become incontestable, and fewer and fewer choose to pay more commissions in exchange for a slim probability of surpassing the profitability that the market itself will give you in the long term. Or as he said, why strive to find the needle, being able to buy all the haystack much cheaper.

The Legacy of Bogle

Jack leaves us two big contributions to the investment world and a reminder. He first applied the common sense that any entrepreneur with his feet on the ground applies in his business: the future benefits are hypothetical and unknown, but the costs are known and real (see Annex 3).

“Investment is the only industry in which the more you pay for what you want, the less likely you are to get it.” – Jack Bogle

If we recall that the long-term profitability of the stock market is limited to about twice the average GDP of developed countries, then opting for a low-cost index investment can double our long-term equity compared to the more expensive options offered by the management industry. Private banking clients, for example, feeling special thanks to the treatment they receive and the exclusivity of the products offered to them, would be paying with half of their potential future wealth to buy products that are better for us, but they are wrapped in a more attractive and expensive “wrapping paper”. This is the immense impact that the commissions have when it comes to investing and that Bogle never tired of repeating for 40 years.

Bogle’s second legacy is far less evident to the naked eye. If active management pales in results against index-linked investment, it is not only because of the difference in total costs. It is because indexing, as an investment strategy, is better adapted to the nature of financial markets than most of the strategies used by active managers. (Central theme of the previous post «The hidden message of indices»).

Indexation, as an investment strategy, is better adapted to the nature of financial markets than most strategies used by active managers.

Indeed, if financial markets were to some extent predictable, those capable of exploiting such predictability would consistently and persistently succeed in outperforming indices by a sufficient margin that could justify higher fees. However, empirical evidence shows that surpassing the indices is a transient and not persistent phenomenon (in fact, those that have surpassed the index in recent years are the funds that most likely will not get it in the future!). So if markets are unpredictable, what kind of strategies are best suited to that nature?

Bogle had a clear answer from the start. Concave strategies (see Annex 2) work best the more predictable the dynamics of the environment in which they operate. Conversely, the more convex a strategy is, the better results you can achieve in unpredictable environments. Bogle’s vision was to realize, albeit intuitively in 1974, that if markets are unpredictable, then convex strategies will have a more favorable chance to survive and «doing better» in the long run. And that indices are a cost-effective implementation of convex strategy. The more convex a strategy is, the better results you can get in unpredictable environments.

His big business idea was to package the convex indexation strategy (resistant to our blindness to the future), pull down the price of the product (incorporating the essential importance of costs in the long-term profitability), and make it available to everyone. Bogle knew that as long as the competition is dedicated to offering attractive, sophisticated, and especially expensive concave strategies; they will be able to win some sprints in the short term (there are many funds that exceed the index to a year), but not the marathon of the long term (just 5% get it at 10-15 years). And it is not because he was a genius, but because he knew how to accept and transform into a viable product the fact that we cannot predict the future of markets.

His big business idea was to package the convex indexation strategy (resistant to our blindness to the future), pull down the price of the product (incorporating the essential importance of costs in the long-term profitability), and make it available to everyone.

The Human Side of a Revolutionary

As for Bogle’s reminder, it’s about our tendency to overestimate what we can achieve in the short term and to underestimate what we can achieve in the long term. It is in the long term that the power of exponential capitalization can materialize. Perhaps walking, running, or lifting today 1% more than yesterday may seem an irrelevant and boring change, but in a few years, it can produce extraordinary changes in our state of form. The same as consistent investment in the long term. Anodyne in the short and medium-term, but explosive in the long term.

As for Bogle’s reminder, it’s about our tendency to overestimate what we can achieve in the short term, and not to take into account what can be achieved in longer periods of time.

We tend to forget what we can achieve little by little; perhaps because of the growing need for immediate satisfaction that permeates our culture. And just focus on what we could get right away. In investment, it is much more popular a book or «trading course» on how to get 20 basis points a day on Forex, that others, such as those Bogle wrote, remind us that today is always the best time to plant the small seed of the tree that will give us shade in 20 years time.

Our expectations for the short term are usually inversely proportional to its possibility of realization. Meanwhile, we tend to dismiss the great achievements that only the long term can give us because today they seem an impossible task to achieve. Bogle did not start by trying to change the industry from one year to the next, but by planting a seed that would flourish decades later only if he endeavored to water and care for it daily. And he did it without even knowing if he’d still be alive the next month so he could keep taking care of the plant. If you want to move a mountain, one day you have to be the first to start digging-even with a spoon you can lose next month.

Jack Bogle’s life is one of those stories that moves and inspires us on various levels. When he could be considered unsuccessful and about to die, instead of giving up, he continued to struggle to start building what he considered most honest and valuable, without any guarantee of success or even the privilege of remaining alive. Without fear of recognizing that the first part of his life (for him then, his entire life) had been pursuing an illusion, striving in the wrong direction. Jack was always loyal to the search for the truth; he made a clean slate just as doctors gave him up and his family needed him the most.

Interestingly, despite Bogle’s enormous added value to society, his name will not be remembered for appearing on the Forbes list of millionaires. When he dies, he leaves his family an inheritance estimated at $80 million. Not a negligible amount, but it pales in comparison to the wealth that other giants in the industry have achieved. Like Warren Buffett ($83.5 billion) or his most direct competitor, Abigail Johnson, the CEO of fund manager Fidelity. Abigail, basically competing with Vanguard, has accumulated personal wealth of more than $17 billion in many fewer years than Jack.

But that didn’t matter to Jack. Of humble and friendly character, his personality never fit within an industry characterized by concentrating the greatest amount of pride per square meter known. When asked about the estate of his competitor Abigail, Jack replied laughing that he would not know what to do with so many “problems”. Bogle, generous even in his comments, reminded us with humility and humor that, beyond a reasonable threshold of personal wealth, increasing the wealth only leads to complicating our lives further.

Bogle, generous even in his comments, reminded us with humility and humor that, beyond a reasonable threshold of personal wealth, increasing the wealth only leads to complicating our lives further.

Jack never wanted to be the richest man in the cemetery. On the contrary, it was much more ambitious: It gradually transformed the most elitist and exclusive industry into an almost public service, helping millions of people achieve their economic goals, saving in the process $2 billion (Anglo-Saxon trillions) to millions of investors. With a sword of Damocles announcing his immediate death for most of his life, he preferred always to focus on building for the long term, continue watering the plant as long as life allowed, and leave a mark.

It was much more ambitious: It gradually transformed the most elitist and exclusive industry into an almost public service, helping millions of people achieve their economic goals, saving in the process $2 billion (Anglo-Saxon trillions) to millions of investors. And he sure did.

Annex 1: Bogle as Benefactor of HumanityVanguard

This has pushed the entire industry to lower its average commissions that it gained in popularity and volume of managed assets, leading it to a transformation today more profound than ever. This has been seen especially during the last two decades, growing each year and continuously, the percentage of assets managed passively through low-cost vehicles, mainly through index funds and ETFs.

According to Willis Towers Watson, of the approximately $81 trillion (trillions) of managed financial assets in the world, 21.6% or about $17.5 trillions are currently invested in vehicles that give exposure to indices. Therefore, if you compare an average total management fee of 1% on traditional vehicles (including investment funds and hedge funds, much more expensive), with the total average costs around 0.11% charged by Vanguard and its low-cost competitors, concludes that the Bogle revolution is saving investors about $155.75 billion a year. Every year, year after year.

That is money that first stays in the pockets of millions of people who save more efficiently for their retirement, their children’s studies, or the house of their dreams. But it’s also money that the management industry stops earning, so in certain circles, Bogle is not exactly a highly admired or popular character (something he didn’t care about). If we add the cumulative growing impact of the shift from active to passive management over the past three decades, we could be talking about total savings for investors (or loss in profits for the industry) around the $2 trillions referred to in the title of this article; almost twice the GDP of Spain.

Annex 2: Concave and Convex Strategies

The philosopher and trader Nassim Taleb classified investment strategies into two large families; concave and convex. The former try to understand empirically what happens in the markets, assuming hypotheses about their behavior in order to develop investment models with a high probability of success. During the time when such models are in sync with the dynamics of the markets, they work very well, giving sustained returns that make the funds that market them very popular. Until the underlying dynamics change or some of these hypotheses fail unexpectedly and the fund fails; ruining its investors, but not its managers (remember the LTCM fund in 1998, for example).

Conversely, convex strategies assume that it is not possible to construct predictive models about the future of markets that are accurate enough to be persistent, So the most efficient strategies will be to limit to the maximum the very likely losses, while letting the benefits run as much as possible when they appear. This produces strategies with a low probability of success (many small losses), but with a large profit on the few successes (it is the basis of option theory in the Venture Capital funds, for example). As there are numerous small losses before a high return comes, they are less popular among investors than concave strategies because nobody likes to start losing money.

Annex 3: The Impact of Commissions

The industry underestimates the huge cost impact on its customers. In part thanks to the volatility of the markets, it allows us to easily believe that -2% a year hardly affects when the stock market moves (due to its natural volatility) double up or down in a week. In other words, it tacitly sells the false belief that that -2% per year is “easily compensated and recoverable” by the talent of managers, thanks to the apparent abundance of opportunities that the volatility of markets offers every day.

Just so you know what the importance of costs in long-term investment, suffice it to remember that an annual difference of 3% in total costs (which is normal if you choose to hire the services of a private bank when managing your assets, compared to a globally diversified portfolio of cheap index funds) means in 25 years a loss of half of the capital that could accumulate.

Mr. Buffett, in the last letter to the shareholders this year 2019, expressed this same idea recalling that if at the beginning of his career he had invested 1 million dollars in an index fund like Bogle’s, today he would have $5.3 billion (!). But if I had chosen an active fund with only a 1% extra management fee, that figure would have been halved.

Forex Psychology

If You Don’t Learn About the Pygmalion Effect Now, You’ll Hate Yourself Later

The Pygmalion Effect (or Rosenthal Effect), named after the legendary namesake king of Cyprus and renowned sculptor who fell in love with a female statue of his creation to which he named Galatea, is the process by which a group’s beliefs and expectations of someone affect their behavior to such an extent that it triggers the confirmation of those expectations.

While some psychologists had already documented this behavior in the early 20th century, It was not until the late 1960s that Robert Rosenthal conducted an experiment in which he encouraged the teachers of a school to believe that a certain pupil would get better grades than the rest, which eventually happened. That is, the teacher acted by converting his perceptions about each student into an individualized didactic that led him to confirm these perceptions in a constructive way. In short, it showed that reality can be influenced by the expectations of others, creating self-fulfilling prophecies.

Although we do not realize it unconsciously, this type of behavior allows us to create and maintain social groups. Thus, cultural tradition assigns norms of behaviour to which its members are expected to conform; such norms, usually implicit, impose codes of conduct that are not easy to avoid. What begins as an imitation by children of what their parents do becomes their own way of being. This means that people take on a role from others, and end up believing their own. It can be said then, that we are what others expect us to be.

Well, what does all this have to do with trading? As Domibond007 points out on the Forum, the well-known topic that 95% of traders lose all their money at the end of their first year is actually a fairy tale! According to this user, four are the fundamental reasons that lead to failure in the trading business, with which I completely agree:

  • We are programmed to fail, simply by believing that the percentage of losers is so high (here we have the Pygmalion effect in action). That’s why we make the same mistakes, knowing they’re mistakes.
  • We go into the markets thinking they’re a casino. We look at the charts in the wrong way, trying to predict the behavior of price based on past trends, and not as what they are, an instrument to see the level of pessimism or optimism of the market.
  • In addition to a lack of preparation and discipline, we enter the market without sufficient capital. Let us remember that the capital we have will allow us to hold out more in the market.
  • Finally, we tend to complicate things too much, looking for the most complex trading system or style when really in simplicity is the trick. The simpler it all is, the more room you have in your brain for creativity.

In short, the fear of success is greater than the fear of failure… total, we are all educated to be employees, not to reason.

Now that we know what the Pigmalion effect is and how it can affect our trading, what can we do to neutralize it? How can we deprogram ourselves so we’re not losers? Very simple, we will take advantage of the opposite effect, the so-called Galatea effect (coined by Albert Bandura in the 1950s).

We must bear in mind that our performance as traders does not depend exclusively on the expectations others have of it. In most cases, the expectations that a person has about himself determine the achievements that he achieves. Thus, if the person has high expectations about himself, his effort will be high, and he will achieve great achievements. On the contrary, a person with low expectations of himself makes little effort, and his achievements are low. This is what is called the Galatea Effect.

Evidently, the Pygmalion Effect and the Galatea Effect interact permanently. If a person expects to fail in trading and everyone tells him he is not worth it, he will surely lose all his money quickly. On the contrary, it can happen that a person does not believe in himself as a trader, and yet the support from his environment to his activity as a trader allows him to achieve profits by trading.

Let’s see now what we can do to activate the Galatea effect and neutralize the Pygmalion effect in our trading simultaneously…

Measures to Neutralise the Pygmalion Effect

Clarify and communicate your own expectations. Ask friends and family to help you recognize their expectations of your own performance as a trader. Discuss the differences that exist between your expectations and those of your environment, in order to reach goals and strategies that both can realize feeling good, but that at the same time is challenging.

Recognize and clarify that expectations can be modified, according to subsequent performance. Ask friends and family to encourage you to take risks according to your abilities; to remind you that you do. is able to achieve success in trading, when it begins to show doubts; and to be recognized for the achievements made and to feel important for it. Similarly, ask those closest to you to help prevent failures that can be avoided.

Finally, remind the people around you that a person hurt in their self-esteem not only decreases their effectiveness but can even lead to the denial of our personal concept, accepting what others manifest.

Measures to Activate the Galatea Effect

Recognize that you are imperfect in trading but at the same time recognize its positive characteristics, based on concrete facts and data. Emphasize your strengths as a trader. Take an inventory of the achievements and goals you have achieved throughout your life. Define what are your characteristics as a trader that you want to develop and improve, as well as the habits that you want to change. Do not hesitate.

Develop and maintain a self-development plan to continuously improve your behavior and trading achievements. Remember that your goals must be both realistic and challenging. Imagine achieving the proposed goals, live them. Think about the consequences that the achievement of your goals could bring. Take risks, tackle new experiences as opportunities to learn more than opportunities to win or lose.

Self-evaluate, learn to evaluate yourself autonomously, doing so will help you avoid the feeling of confusion that results from being aware of the opinions of others. Focus on how you feel respect for your own conduct in trading.

Forex Psychology

Trading Psychology 101: A Complete Guide to Self-Actualization and Prosperity

When we start learning about trading, topics such as consistency and rules make it the last on our list, especially because, with the pace and the stress of everyday life, we make a profit our priority. However, if we are already eager to get to that financial freedom, there are specific points that we cannot turn a blind eye to and simply ignore. Experts in this field share how now, after several decades of trading, they have long stopped reading about trading itself. However, what they are still vigorously passionate about because of the benefits it brings is learning about trading psychology and about themselves.

Naturally, there is always room for improvement in terms of trading-specific knowledge, yet once you feel that you have covered enough to serve you consistently, it is time to truly focus on your actions and behavior. Today, we are going through this comprehensive list of lessons and tips which you can use as a guide to achieving self-actualization and prosperity.

Traders often see more benefits from short-term activities than what they can actually reap in real trading while heavily doubting the potential their actions can unlock over the long haul.

Lesson 1

At the beginning of a trading career, many traders are quick to assume that they can realize all of their potentials and surpass others faster than what is realistically possible. At the same time, beginners frequently miscalculate their steps and undervalue what they can produce in the long run. What this essentially means is that traders typically have a desired sum of money they wish to win in the shortest amount of time, but as it often turns out, this amount is usually equal to the overestimation of their skills and abilities at that particular stage of trading development as well as the underestimation of the success they can actualize from a long-term perspective.

Many professional traders have admitted to having had the same approach to trading at the very start, without realizing what this type of he/she wishes to attain and, for some people, this may be a dream house or a dream car, while for someone else the goal may have to do with overall financial stability that would secure a household. Especially for those with more pressing issues, everyday needs and challenges (e.g. raising children), or a strong vision of what their future should look like, the urge to reach a financial goal might make the idea of becoming a successful trader overnight that much more inviting.

What experts in this field always tend to stress over and over again is the perspective which most newbies seem to lack – if young traders could only take a step back and commit to a slower pace, they would be able to obtain increasingly greater freedom and finances. Therefore, instead of missing sleep over the initial $2000 a trader longs to earn, he/she would rather adopt a different mentality and take one step at a time to get to much more lucrative endeavors that would bring about sustainable capital just five or so years later. 

Growing as a trader is a process, not a matter of learning a few tricks.

Lesson 2

While traders are constantly surrounded and bombarded with dos and don’ts in every way possible, they also need to understand that the path to becoming a self-actualized and independent trader is also a developmental process. The same path of discovery can be found in different fields of work, so actors need not be able to play out all characters until they discover a sense of inner strength and control just because they read the plot or took acting classes before. Any form of brilliance is like a jewel whose outer layers need to be stripped off until it gets its form and shine to be of any use or to be sold.

Many successful professional traders have shared their own limitations and challenges in trading: some dealt with the excessive need to overtrade, some struggled with fearing the risk which often stopped them from entering good trades and making more money as a result, and some others found taking a loss too difficult so they felt compelled to immediately enter a new trade. It is important to understand that every trader has some part of the personality that demands more attention and that is likely to have a negative impact on trading if left unnoticed and unattended.

At the same time, no development can take place unless we are eager to look within and face our inner demons because without acceptance there can be no recovery and growth. It is in human nature to need to look and feel impervious, complete, and untainted and traders can find solace in the fact that this is a shared trait across all individuals regardless of their age, background, education, or else. 

The first step to growth as a trader is to acknowledge and accept one’s flaws.

Lesson 3

In order for any trader to be able to get over the hurdles caused by their own minds and emotions, he/she first needs to satisfy the number one condition and admit to being imperfect. If you are ready to recognize that you are, in this present form, less than what you need to be capable of producing the results you are hoping to obtain, you will also be able to accept yourself and leave space for improvement. Many traders are already aware of the mistakes they are making because they often stem from some unhealed parts of our minds or souls. If you are already able to notice that you feel tension building up in your body before you take some step (e.g. click the button to rush into another trade after a recent failure), you must also know that whatever action you are preparing yourself to take is not coming from a place of stability and control. However, many traders are also quite attentive and they already recognize these patterns that they feel obliged to repeat time and time again, so they feel tremendous guilt and shame for not being able to put an end to such behavior.

It is in the moment of realization that they will never be able to stop this continuous agony that helped some professional traders to discover a renewed sense of strength. Only once they gained this understanding of their inability did it become plausible for them to overcome such a tremendous challenge. Traders often keep putting more and more pressure onto themselves after they finally see traces and consequences of self-sabotaging behavior, but it is not through erasing or ignoring a specific behavior that leads to strength but through learning how to trade effortlessly in spite of it.

Trading will help you not only allow you to see the person you are but also help you build your character with time.

Lesson 4

The moment any true development is activated is after we acknowledge that we are “damaged” and accept the need to put the effort into finding a resolution to the existing problem. The gap between seeing the fault within ourselves and showing the willingness to do something about it is so vast that it is one of the key determiners of how successful a trader you can become. It is precisely this quality that will distinguish between high-achieving traders and the impulsive ones with an expiry date on their trading careers. Now that you have become aware of the triggers and situations which keep you in this perpetual loop, you are allowing yourself to get a different and more objective perspective where various creative solutions and ideas can emerge. You are growing tactics and methods that will put you out of that vicious circle, so you are no longer in need of exposing yourself to the things that used to trigger you before.

As trading is not exempt from everyday ailments and since it mimics life in all of its forms due to the shared human factor, it is easy to draw connections with some other real-life situations. We can see how some major life adjustments are carried out in the exact same manner, and any addict in recovery would also need to think of strategies to avoid provocations on a daily basis. Here we can prove to ourselves how despite the conscious assessment and recognition of our emotions, shady traits, and situations that may enable undesired behaviors and bring up more pressure and dissatisfaction, we can find peace through acceptance and focused action. When you are able to fully feel all the emotions that may range from exciting and positive to gloomy and scary and still keep moving towards your goals, you know that you have reached a new level of competency that will prevent all those hours of learning about technical tools and testing the algorithm from going to waste.  

Four key trading psychology terms we need to keep in mind are recognition, acceptance, investigation, and competency.  

Lesson 5

This journey is not easy, yet it is an exceptionally rewarding one in the sense of ensuring lasting changes that you will get to witness in different areas of your life. The entire introspection that you put yourself through will inevitably transfer onto your trades and your personal life as well because you will experience a renewed sense of self-confidence and self-reliance. Once you make a decision and commit to leaving no stone unturned until you see the causes of your actions, you will discover deep satisfaction and serenity that, looking back, you will know you have done the right thing. The fact that the best traders in the market keep bringing up the same topics, insisting on traders learning about trading psychology, is an indication that looking within is the only certain way to get to the top.

Even famous psychology book writers and scientists admit to there being two parts of us – one that makes an inherent part of our existence or what we call our nature and another that consists of the lessons and experiences we drew from our surroundings. Some people are, for example, born risk-takers and this is in the innate characteristic that can be further shaped or molded by the environment. Someone who was born in a family where financial literacy was openly discussed and stimulated will probably enjoy a massive head start in comparison to other trading beginners in the market. The keel will never be even and everyone will have their own share of deeply rooted beliefs that are blocking their progression towards expert-level trading. Especially since we cannot always be consciously aware of our subconscious beliefs, it is important to willfully try and test our assumptions about who we are and what we believe in. What you may discover is the realization that some ideas you firmly cling to have never truly served your best interest or helped lead to the results you are aspiring to achieve. And, of course, once we obtain new knowledge about ourselves, we can then take appropriate measures and become one or several steps closer to that ideal version of our future selves. 

Challenge your belief system regardless of where these teachings came from (family, school, etc.) because you may find out that the ideas you embraced so freely never served your highest purpose.

Lesson 6

Psychology tests are becoming increasingly available and resourceful, allowing for easy access and use to analyze how individual personality traits may affect one’s trading style overall. These evaluations typically assess the following four main areas: energy, mind, emotions, and perception. The analysis of one’s energy provides insight into how energy is generated and where it is directed. It reveals whether energy is focused inwards, which is characteristic of introverts, or if it is projected outwards, which we mainly find in extroverted personality types. Those traders who fall into the second group are, for example, much more likely to overtrade because extroversion is heavily drawn to a plethora of stimuli, activities, and achievement.

Having an introverted personality type, however, opens doors to some other patterns of behavior, which can prove to be equally detrimental to trading. The second level of analysis that covers the mind allows us to understand how we see the world and whether we are a more intuitive or a more observant type of person. Here we may find that we are not as detail-oriented as we might have initially assumed, and this knowledge of how we process information can prove to be of great benefit to all aspects of trading. It can reveal its potential in the process of creating your own trading system, which needs to match your own personality for it to be able to produce results. This is another reason why so many expert traders keep saying how some trading systems, despite their creators being extremely successful and affluent, never worked for them. The next point of assessment includes the analysis of one’s emotions, or the opposition between thinking and feeling, that determine our entire decision-making process.

Many professional traders always stress how important it is to acknowledge how you feel in some key points in trading to put an end to behaviors that sabotage your trades. The analysis of one’s perception is also extremely useful because it demonstrates whether traders make decisions based on perception or judgment, leaving room for a more advanced comprehension of their approach to work. And, it is now abundantly clear that one’s entire approach to trading reflects his/her unique set of values, thoughts, ideas, and emotions and these tests can truly help traders get to the core of who they are in order for them to interpret these results and use them intentionally to their benefit. 

Psychological tests do not only allow traders to learn about who they are but they also provide insight into how those traits might affect trading as a whole. 

Lesson 7

The study of epigenetics has shown how we all fall under the effect of different events that permanently influence our genetic makeup. It also proves how experiences that we have leave marks in our neurology, forever changing who we are. As human beings, there are many different causes of such epigenetic alterations as our nature is in constant interaction with our environment. Our experiences in time and place and our relations with other people inevitably impact how we think, what we believe, and how we feel. For example, all traders who have traded before now have this concept and experience of trading stored in their belief system, having thus become a part of who they are regardless of individual success. The events we experienced as children also created pathways for certain triggers to produce specific emotions as if we were trained to respond in a certain manner in similar situations.

Our biology is an equally strong determinant of how these external factors shape us, so someone who is a highly sensitive person may be more reactive to the surrounding stimuli than someone with a different biology. The brain is a powerful tool that stores information, and this process is likely to set off some reaction. The more these connections between a specific context or a situation and a responding emotion are made, the deeper the pattern becomes. That is how one day we may realize we are constantly rushing into trades without knowing the reason behind such behavior. And, while we cannot surgically cut through the lenses of our own neuroscience, we can find peace understanding that our responses seem to be out of control because they are not a conscious choice we choose to make, but a well-preserved bodily function.

Many responses to the external stimuli are of chemical nature, resulting in specific emotions that always provoke similar reactions. 

Lesson 8

In a Harvard study, carried out to assess altruism and fairness, the so-called Ultimatum Game was used to uncover different personality traits that take part in decision-making processes. The experiment paired two individuals, “the Proposer” who was tasked with making an offer and “the Receiver” whose role was to respond to the proposal. The players were given the sum of $100 which they were supposed to split after the Proposer decided on the amount willing to share with the other party. If both players agreed, each participant would receive the agreed amounts. However, if the Receiver refused to proceed, neither this person nor the other individual would earn any profit. During the entire process, both participants’ brains were monitored through an MRI to detect brain activity. The study has shown how, whenever the Proposer assessed how much money was to be gained, the prefrontal cortex was always activated. This particular region in the brain is responsible for various cognitive processes such as planning, decision-making, self-awareness, and problem-solving, among others, and is demonstrative of rational thinking. At the same time, whenever the Responder deemed the offer fair, the same part of the brain would lit up. While the Respondents consented with the offers they considered fair in most cases (close to 100%), the ones they believed to be unfair were rejected in approximately 50% of situations.

What is particularly interesting is that, in such cases, the MRI showed activity in a different part of the brain which governs emotional feelings such as fear or anxiety. This conclusion is extremely important because it proves how, despite the assumption that we are always coming from the place of clear, logical thinking, our decision-making processes are not necessarily always representative of rational thinking. The fact that another brain region activates when we make decisions proves how some of the decisions we make do not come from the right parts of the brain responsible for rational decision-making. Moreover, the study further suggests how in some situations people are utterly incapable of using the prefrontal cortex when they find themselves in a losing position, which should help traders understand why some of their reactions lead to losses. 

Even though we assume to be rational, studies have shown how some decisions are made in the part of the brain responsible for fear and anxiety.  

Lesson 9

Various other studies proved how different emotions activate different regions in the brain, which undeniably affects the decision-making processes. A study of hunger carried out at Ben-Gurion University of the Negev, Israel, researched judges and analyzed more than 1,000 parole decisions made across a period of 10 months. The judges who took part in the study had vast judiciary experience of 25 years on average, which also meant that they had attended numerous Parole Board hearings up to that point. What is interesting is that time of the day emerged as a crucial factor in determining the outcome of a hearing, and hunger directly proved to have a direct impact on the decisions made in the courtroom. The study has revealed how the best time of the day to go before the judge was between 9 and 11 in the morning, indicating a 25% higher chance of seeing a positive outcome. Nevertheless, the next time slot, between 11 and 12, turned out to be the least favorable period in a day, while the window of increased opportunity would only return after lunch. Another drop in parole rates was recorded after 3 PM, lasting until the next rise at 5 PM. These causal associations demonstrated in the above-mentioned study can also be found in the world of trading, where we need to use our systems to trade.

Things that happen inside the human body with all the processes and the connections that are established throughout our lives may have more to do with the sequential, repetitive decisions that we make without understanding why. Sometimes to quiet down their minds and get into a state of complete focus, some traders like to practice meditation which allows them to reach a state of complete centeredness. By doing so, traders quiet down their minds and emotions, thus heavily decreasing the potential of stress residue or any hidden emotional pile-up to affect the trading. Meditation is, however, only one type of activity that leads to improved physical, psychological, and of course physiological state, and traders should explore different pursuits and/or routines that would provide them with the peace and quiet their minds and bodies need before and during trading. 

If hunger can affect the decision-making in judges with over 25 years of experience, imagine what occurs in your body that you have no control over. Find an activity that can help you feel centered and relaxed before you start trading.

Lesson 10

The knowledge of the human body and mind we accumulate with time might make us feel that people are doomed in terms of the ability to fight against our own nature. However, it is only with this knowledge that we can willfully leave more room for acceptance. As more information is gathered, traders need to increasingly invest in exploring their own actions and which steps they choose to take at a particular moment in time. Often people fall for the same trap now commonly known as the Dunning–Kruger effect that makes them view their cognitive abilities as greater than what they actually are, which is the most vivid in those with the least amount of knowledge. Many traders feel exceptionally confident immediately after going through several books on trading, yet when they get immersed and explore the topic more thoroughly, they start to realize that trading is harder than what they had ever expected before. At this point, some traders decide to quit, whereas others choose to devote more time and effort into becoming more knowledgeable about this field. As the curve keeps rising, so does the understanding of the subject, with traders finally reaching a higher level of competency. The rationale of the chart below is to let traders know that if they continue to put energy and keep going further, they will inevitably accrue knowledge and experience and reach the level of expertise they need to be successful at trading. 

People are prone to having a cognitive bias in which the ones with low ability at a task overestimate their ability (see Dunning–Kruger effect). 

Lesson 11

The discoveries made in the field of homeostasis (or what we know as the Yerkes—Dodson law) indicate a connection between pressure and performance. This relationship is increasingly important for extroverted individuals who are usually fond of stress and a busy schedule. The ones who feel motivated by having a variety of tasks to complete may also feel less motivated if the quantity of stimuli is low. What these individuals perceive as a lack of challenge makes them put less effort as a consequence. On the other end of the spectrum, when the quantity of stimuli goes beyond a certain range, the levels of cortisol and some other hormones become increasingly high, thus affecting the natural homeostasis in the human body. At this point, these people may show signs of stress, anxiety, and impaired decision-making. The chart below also exhibits the mid-point where people at the peak of performance are found. The area in between the extremes exhibits the perfect homeostasis or the flow where we can find individuals who are sufficiently motivated and who may, at the same time, struggle if presented with a lighter workload. When transferred to trading, we may find direct implications of this study in the manner traders approach their trades, and it is becoming increasingly important to recognize these patterns our personality types bring into trading.  

The knowledge of how you work under pressure may tell you where your mistakes in trading are (see Yerkes—Dodson law).

Lesson 12

When you read about all the potential dangers of the human mind, the first thing you should not do is not fear yourself. Rather strive to be mindful before you sit to trade, enter that stage of homeostasis and flow through willful effort. Consider topics such as routine and steps to prepare yourself for whatever your next trade is going to bring along. It is vital that you think about the ways you can give yourself much room for allowing for good opportunities to occur, so clearing your mind should be made a priority. Here, at this stage of inner peace, you can actually go over the points where you have not acted in your best interest in the past without judgment. By facing the past challenges with a calm and open mind, you can come up with strategies to avoid any future repetition. All of these activities are there to support you and give you the strength to bring out your best qualities and potential. Without going deep, traders are not fully embracing who they are and are, thus, limiting themselves to a version of themselves that is simply “less than.” Trading skills are not a pill that we can just take to one day to reach success out of the blue. In the same way, we cannot see people as inherently, right from the start, good or bad traders, yet they have grown to become the best possible traders with time and with hard work.

Traders are not born but developed.

Lesson 13

As we can see from the information presented above, investing in learning general trading knowledge alone is simply insufficient and the sole focus on key trading terms can actually shift your perspective away from your real potential. This, naturally, does not imply that looking into charts and understanding the vast trading terminology is a negative approach but it does point to the need to pair it with the conscious effort to discover oneself. There is no fear or weakness in looking within because if you have already failed in the past, the results are there to remind you of the uneasiness of losing money and taking losses. Cut the strings of painful events and recognize your weak points. We cannot escape who we are, but we can endure the act of self-scrutiny if we know that the end result is going to be a positive one. When something hurts, the only way we can put an end to the continuation and the reverberation of its impact is through understanding why something happened in the first place. If something can serve as a lesson, it never truly was a mistake but an opportunity for growth. The purpose of any loss is to help us step into the individuals we feel proud of, helping us develop both as people and as traders.

If something helps us learn, we cannot call it a mistake.

Lesson 14

If you feel convinced now that introspection and inner work is the only real path to self-actualization and prosperity, you can follow the steps we are going to share with you here. Firstly, start off with identification and acceptance of your weaknesses, nurturing an understanding that we all have our own pile of dirt to tackle. Avoidance is not an option if you are serious about who you want to become, and it is also one of the easiest ways to fail as a trader. Secondly, devote time to the planning of how you will avoid repeating the mistakes of the past. Nevertheless, be mindful of the fact that jotting down a plan alone is not going to do the work. What all traders need is discipline that will create a completely new routine through the repetition of healthy strategies and techniques.

If you find discipline to be stressful, find comfort in knowing that numerous experts revealed how such a structure actually allowed them to feel liberated. Knowing what you need to do can put a lot of pressure off your chest and allow you to take up other creative endeavors in life too. Next, you do not need to fight your nature but embrace it in its full form. Learn to trade in spite of your shortcoming and, by all means, do not let yourself remain obsessed with your losses, letting the guilt and shame reside somewhere inside you. Instead, understand that your traits cannot be erased but can be guided and transmuted so as to serve you. Do not fall for the lie that you are ever going to be perfect because you will soon be in a fast lane going back to where you started. Keep reminding yourself of your weak points and maintain vigilance over your own risky behaviors through practicing discipline and consistency.

Discipline equals liberation.

Lesson 15

One of the last notes to remember is that the essence of success in trading lies in the combination of various key aspects which we all refer to as competence. Composed of experience, knowledge, skill, behavior, performance, and goal, competence is indeed both complex and layered. It is no wonder then that some believe how traders need 10,000 hours, or five years with a 40-hour week routine, to become experts. This, however, should not make you want to give up but the opposite because the benefits that you will grant yourself are immense and immeasurable. Aside from seeing the financial reward, you will get to learn about yourself in a way that you would hardly ever be able to. You will learn how to be successful and how to enjoy that success in every respect, applying it to all areas of your life. Now that you are fully equipped with all the knowledge, go ahead and start digging. It is worth it.

Forex Psychology

Why Conspiracy Theories in Forex Might Only be Half-Truths

A conspiracy is definitely one of the terms that arise a lot of pros and cons among people, depending on the way of their thinking and using their common sense and healthy logic and presumptions. The majority of the crowd get into the endless world of conspiracy theories once they start getting older and being disappointed with society, limited by life responsibilities, and faced with their own failures. By blaming someone else behind the curtain, the one who we actually cannot affect and who is pulling the triggers is one of the paths to enter the wide world of conspiracy theories. These people believe that there is always something suspicious going on behind the scene in every single fragment of their life, without actually being able to prove most of their beliefs. 

On the other hand, many individuals among us completely deny the existence of any conspiracy and these are usually people that buy everything being served to them via media, commercials, press, celebrities’ statements, etc and not having developed their critical thinking or use of logic in their mindset. They even use the term “conspiracy theory” in a pejorative sense, dismissing the possibility to consider other side arguments. 

None of these two aspects can actually be either proved or denied totally, but one thing stands for sure – conspiracies do exist, at least in a form of financial scandals, political affairs, or related fields where power and money play main roles. The games with big money are controlled by people having big money, influence, and power and that is the only certain conclusion proofed by nowadays so many times. Large funds and institutions are usually connected with placing news on the market, which hence provokes adequate moves on the market. 

And let’s remind ourselves for the moment that these moves are made, for instance, through the Bloomberg terminals. The abovementioned terminals belong to partnership Bloomberg L.P., which is 88 percent owned by Michal Bloomberg, the US Democratic party member, and a former mayor of New York City. The entity, together with its subsidiaries makes about USD 10 billion of revenue annually, providing necessary information to the people doing business in finance all over the world through its Bloomberg terminals. Over 320,000 people pay the subscription for use of this software and this is not the only company he possesses through its subsidiaries Bloomberg news and television as well.

It is not therefore hard to assume that someone with that much influence and money imperia would be capable to affect the market and place the news of his own interest, especially considering the fact that M. Bloomberg belongs to the Democratic party, lacking, however, to have the Trump’s charisma, speech and in general capacity to beat him on the Presidential elections. On the other hand, he would be probably capable to set the stock market circumstances and trade trends in the favour of his party, simply because he is in a position to control these factors. It would not be hard to imagine that he could easily start the recession or another financial crash, not him personally of course but by using that great influence he has. But this is something that is yet to be seen. 

On the other side, the US Democratic party itself has used the allegation of another conspiracy theory-surprisingly-through Bloomberg news, as a weapon against Trump’s administration. They alleged that the so-called QAnon internet movement, being supporters of Donald Trump and part of his voting body could potentially become very dangerous or even an inspiration for domestic terrorism acts. Although it remains unknown who is actually Q, the allegations described him as a -positioned governmental officer, supporting Donald Trump and having access to very confidential peace of information related to US national security, nuclear weapons. The QAnon movement originates actually from a connection with another conspiracy theory in the past – during the US Presidential elections campaign back in 2016.

As we can remember, Trump’s opponent and the democratic candidate was Hillary Clinton. The affair that occurred at that time was so-called PizzaGate, and it pertained to the sex trafficking involving children around pizza restaurant in Washington. The conspiracy theory was relating the leading democratic politicians to this affair and Hillary Clinton among them as well. It is, however, difficult to prove how massive is the crowd that supports this theory, especially because they seem to get their support mainly via the internet and online.

Let us, though, come back to the financial conspiracies, which seem to affect the trader’s daily life and certainly have a large impact on the common people’s loss of money, their capital, or retirements. Why are the crowd and the common trends usually the ones that we follow, without having a second thought that the result may not be so brilliant as it may seem in the beginning?

If we understand the control and the power on the forex market it may be easier to prevent the traps and find ourselves in a way better position. The so-called Big Banks are the ones controlling the fluctuance and the times of raises and falls on the stock market, controlling that way the prices going up and down. The Interbank, being the network of all banks present at the market, cca 45 of them, is consisted of a couple of major ones:

Deutsche Bank, Citi Bank, JP Morgan, HSBC, and some of the Chinese banks. As the banks are in constant need of liquidity, they need extra money to put it out there in a market. But their main advantage in relation to traders is that these banks are aware a priori where each order sits, in which direction it goes, does it have tendencies to go long or short on the market, and in which time frame. This is something that puts them in a position to control the market, and once they do, it becomes very hard to respond. Banks are also well connected to the people of great influence, and once they publish information, the major crowd is going one way, for example going long for a certain type of currency.

The banks then cut that trend and start going short and this is the point where people lose their money. Not always, though. In order to continue this game and to keep playing the traders must also win sometimes. But sometimes only, and this is the so-called “Black Jack theory”. It is a small win, with a strong psychological impact: makes one feels good, smart, and capable to do so much more. And this is the momentum where the majority of people, instead of taking their money and invest in something else, keep playing. And they usually lose in the end, but the game goes on. A good comparison with the forex market here would be a casino, that functions the same way.

How dangerous it is to follow the crowd may be shown on the example of the EUR/CHF crash back in 2015. That was the pure example of how can banks affect price going one way while traders are going the other way. At the aforementioned time, the Swiss National Bank had ordered a pegging of CHF to EUR, meaning that CHF will not drop below the EUR 1.2. Pegging is the way of controlling one country’s currency rate by fixing it to another, presumably more stable currency. As a result of this, the common thought of the majority of traders was to put long on EUR/CHF with the thought in their mind that CHF could only go up and not down. What happened next was that the above mentioned banks used their influence, power, and capital and persuaded the Swiss National Bank to remove that peg. And the swiss national currency went down, provoking one of the biggest financial crashes in a newer history. Not only traders had lost after this happened, but entire platforms and funds crashed and closed and it all happened in a time frame of one day. Afterward, the CHF started going up again slowly, but that was not enough to repair the damage.

The common people cannot compete with big banks, the banks will always be one step further, if not for anything else then because of the fact that they had the information prior to simple individual trading on the stock market. There is, however, a way that one can profit and make smaller benefits from time to time, by using the market moving in waves and by going out with a profit and investing again somewhere else at the right timing. This would be like turning the above-mentioned BlackJack theory in his own favor and there are tools in a market that can help with this.

One of the theories in trading against the crowd is the so-called contrarian trading approach and is worth mentioning in the context of what is being said so far. Contrarian trading is trading against the current market sentiment. The market sentiment is shown on some financial platforms that show the indicators in which direction traders are positioning all over the world, showing the percentage of traders going long and going short or whether the market signals are bullish or bearish. This is being used as some sort of a prediction, to anticipate prices direction in a market and make a proper move timely. 

Hence, trading against the current market sentiment would actually mean that if the present situation on a market shows that the majority of the investors are going short, the contrarian will go long and vice versa. Such a way of trading requires, of course, in-depth knowledge of the market circumstances, updated information, experience and follow up of the client sentiment indicators mentioned above. In that sense, one will be able to figure the exact entering and exiting points while trading, in conjunction with other indicators. Trends get to some point when they become exhausted and recognizing that moment is vital for contrarian trading-if the masses are going one way, contrarian will do the opposite but at the right timing. That is why some prior experience is needed here, in order to be able to recognize such moments.

To put a bottom line and pull out a conclusion here, it is important to say that we should not ignore conspiracy ideas and theories completely but to be able to determine their impact on money, power, influence because it all ends up for these motives. Should be aware of fake news, half-true news at certain moments and open up our minds and think of the reason why such information is placed to us right now, and how this affects the behavior of the investors, politicians, etc. Conspiracies had existed through numerous affairs and historical happenings in the US for many decades now, from JFK murder to the aliens and bunch of secret agents working together for evil purposes or whatsoever.

However, it is very important to sort out the information, and if we talk about market trading – to avoid following the masses. 

Beginners Forex Education Forex Basics Forex Psychology

Achieve Total Forex Competence in These 4 Simple Stages

The “four stages of competence” psychology model was created by management trainer Martin Broadwell back in 1969. It is used to describe the different kinds of psychological states one goes through when progressing from incompetence to competence with a skill. While this widely popular psychological guideline can be applied to a variety of different skills, it is especially useful when describing what one goes through on the journey from a forex novice to a truly competent trader. Stay with us as we explain each of the four stages and how they apply to traders.  

Stage 1: Unconscious Incompetence

This stage is simply a fancy way of saying that you don’t know much about what you’re doing, which applies to pretty much any skill you try for the first time, from playing an instrument to opening a trading account. Even if you have some trading activity under your belt, you’re likely still in this stage if you haven’t done much research and don’t put much thought into what you’re doing. Maybe you made a big bet and won so you keep it up, without realizing that your winnings are due more to coincidental luck than they are to your own competence of trading. You might even have the mindset that trading is easy because you don’t fully understand everything that goes into making smart trading decisions just yet.  

Stage 2: Conscious Incompetence

In this stage, you might actually realize that trading is harder than you thought. Perhaps simply reading this article has brought you to the stage of conscience incompetence! You still aren’t very knowledgeable about trading in this stage, but this is where you admit that and start making an effort to learn more about what you’re doing. When it comes to trading, you might pay more attention to fundamental or technical analysis, test different indicators, start keeping a trading journal and spend more time doing general research about trading. As you progress through this learning stage, you should be able to find a strategy that actually works for you before moving on to the next stage of competence. 

Stage 3: Conscious Competence

By the time you reach this stage, you will have spent enough time learning and testing out strategies to have a good idea of what does and doesn’t work for you. This doesn’t mean you’ve achieved perfection, but you likely have a detailed trading journal right beside you with an idea of different profitable strategies you could use and you’ll have implemented risk-management rules you intend to follow. While you may have issues following these rules exactly, this stage is about progress and you should be able to keep a clear head when losing trades while understanding that consistent execution is better than simply winning trades. During this stage, you may put in extra thought and overanalyze things in an effort to make better trading decisions. 

Stage 4: Unconscious Competence

Once you reach this stage, you’ll switch into autopilot when you’re trading. Think of when you first started driving, how you were probably aware of your exact speed or how you had to remind yourself to turn on your car’s headlights at night. Later on, you become so used to driving that you switch on your headlights without consciously thinking of it or you look down and realize you’ve been speeding without realizing it. This stage of trading works in the same way – you can identify trends and patterns efficiently without much thought, you get good or bad feelings about trades that you should enter, and you know when something needs to be changed when it comes to your strategy. At this point, you don’t have to put conscious effort into trading because it comes to you naturally. However, you should remember that a trader’s work is never done, so don’t make the mistake of assuming that you’ve mastered trading once you reach this stage. Never stop pursuing knowledge and don’t make the mistake of becoming overconfident. 

Now that you’ve learned about the four stages of trading competence, which stage do you think you fall under? Perhaps this can shed some light on what you need to do as a trader to move on to the final stage.

Forex Psychology

The Supreme Discipline of the Forex Trader

Although the currency market is the largest market in the world, there are still many traders who have no idea how it works. So, the reality is that there’s a fair amount of prejudice against currency trading. Some traders even fear the market. If you’re one of those traders, be sure to read this article carefully.

In it, we will present to you the most important basic concepts of the currency market or Forex trading and show you the possibilities it offers. But even for readers with a lot of experience in this market, this article will be an interesting read, in which they will still be able to learn a little more.

Anyone who has made the decision to prove himself in the supreme discipline of traders must become intensely familiar with the currency market. If you know how the market works and what tools are available, you can optimally plan your operations and succeed.

Which players are represented in the market, how should risk and money be managed, what are the possibilities of analysis, and what are the most proven strategies? In this article, we want to work step by step on the most important points so that you can finally start successfully in the currency market (Forex).

What is Forex?

In the Forex market (currencies), currencies (currencies) are traded on the OTC market (over the counter). In other words, there is no central market but only OTC operations. The foreign exchange market is made up of banks, large companies, central banks, funds, intermediaries, and private investors. The Forex market gives the trader a chance to actively trade in the currencies of different countries, with private traders who can only actively trade in the foreign exchange market since the mid-1990s.

Previously, it was available only to institutions. The special feature of this currency market is that it is open on Sunday afternoons and remains active until Friday evening. During this time, it is open 24 hours a day, with a daily trading volume of around $6,000 billion, much more than any other market. Of course, it has its advantages. For example, you can trade when you have time currency pairs that are actively trading.

For example, suppose you live in Germany and have a window of opportunity from 08:00 to 10:00 when European stock exchanges open. In this case, for example, the currency pairs GBP/USD and EUR/USD could be very interesting. In general, the Forex market is very flexible and is able to create a timeline based on individual criteria.

What Moves the Market?

Economic data, in particular, has a significant impact on the Forex market, especially if a particular message deviates significantly from analysts’ and investors’ expectations. In some cases, however, a central bank could take a completely unexpected step at a certain point, leading to a dramatic price change in the currency market. Therefore, a position that is opened immediately before the central bank meeting is not advisable.

As with any trade, you should always remember to limit your losses through a limit on the Forex market, and consider what can happen when you post a specific message that moves the price directly to your loss limit. The amount lost due to a certain position is the question that must be asked again and again.

Entering the Currency Market

Currency pair trading can be done in different ways. Private investors, by choosing a suitable intermediary, gain access to various products with which they can directly or indirectly implement their trading ideas in the Forex market. In the case of cash trading, the two partners trade foreign currencies among themselves. For example, if Bank A with Bank B exchanges EUR 10 million/USD at an exchange rate of 1.30, Bank A will have to transfer USD 13 million. The A will receive 10 million euros from Bank B. The classic currency transaction is also available in a slightly modified form in private Forex trades under the name Spot Business.

Some brokers also offer trading with Forwards. Both methods are usually transactions based on a margin deposit; that is, with leverage. However, compared to cash trading in the interbank market, the foreign currency is not delivered but is “transferred” until the position is closed with an opposite order.

Costs Incurred 

Since the foreign exchange market is an interbank market and therefore does not incur additional fees to the stock exchange services, its trading is relatively cheap. Therefore, depending on the broker model, the trader only has to pay the differential or a combination of fork and commission. The tighter the hairpin, the better for the trader.

Since the currency market is very liquid, the odds of tight ranges are usually quite good. At the same time, dispersion is an important criterion when selecting the broker (in combination with commissions). However, traders need to know if the hairpin is fixed or flexible. In turbulent times, it can be a significant disadvantage when it suddenly reaches an expansion.

In addition, there may also be large differences between individual intermediaries in terms of corporate policy. Therefore, make sure that your broker guarantees the execution of the order and the setting of your loss limit. You should also make sure to include redundant systems to protect your hardware and software so that your commands always run, even if the server fails you during an operation. It should be noted that even in the less regulated currency market there are regulators who supervise many intermediaries, for example, the NFA (National Futures Association) in the U.S. The U.S. and the FCA (Financial Conduct Authority) in England.

On their websites, investors receive full information about private currency trading. Operators should be careful if the agent is in a peripheral country.

Trading Practice – Fundamental Analysis

The fundamental analysis analyses the causes that influence supply and demand in a given currency and thus determine the exchange rate. In assessing supply and demand, they consider, inter alia, the economic situation, and developments in the two currency areas included in each currency pair.

The development of factors such as interest rates, inflation, politics, and society, as well as economic growth plays an important role. Using models, it is possible to assess in a long-term context how a change in certain influencing factors affecting a given currency would affect and whether the current exchange rate seems justified. The exchange rate, which results from the models, is however only a theoretical guide.

In fact, prices may deviate from this, as particularly difficult future expectations to measure are included in price formation. Basically, however, it applies to the analysis: if the current price is below the value of the model, there is talk of an undervaluation, in the opposite case of an overvaluation.

Interest Rate Parity

The simplest model is interest rate parity. It requires traders to invest where they can achieve the highest return. Investment opportunities should have a similar level of liquidity and comparable risk. Capital flows between the two countries are based on the interest rate spread between the two currency areas, according to the interest rate parity model. If the interest rate is higher abroad, traders transfer their money there at the current exchange rate.

Later, the money is transferred back to the source at the current exchange rate. Depending on how the exchange rate develops during the investment period, it will have a positive or negative impact on profitability. If there were no exchange rate movements, the return would simply correspond to the foreign interest rate. Then, later, each investor would keep their money in the currency offering the highest interest rates.

Balance of Payments

In contrast to interest parity theory, the balance of payments attempts to explain exchange rates with a holistic approach. The focus is not on the return efforts of investors, but on the flow of goods and capital flows between the respective economies of a currency pair. The balance of payments is a systematic record of economic transactions between private and public households, as well as businesses and banks at home and abroad. It consists mainly of the current account and the capital account. The current account records all transactions in the goods market.

The current account balance is often defined as the “external contribution”. In other words, it’s about the difference between exports and imports of goods and services. If a country has a positive external contribution, domestic capital increases as a result of net capital inflows. If, on the other hand, imports exceed exports, money flows out of the country and domestic assets diminish. The capital account records accounts receivable and household liabilities vis-à-vis other countries. Here, a distinction is made between capital imports and exports.

The difference is also called the net export of capital. If the performance and financial balance are not the same, an imbalance between the supply and demand of a currency is created. The resulting movement of the exchange rate returns the relation to the equilibrium point. Fixed exchange rate systems may also have long-term imbalances in the balance of payments.

Purchasing Power Parity Theory

The third model, the absolute theory of purchasing power parity (also known as purchasing power parity, PPP), compares the purchasing power of 2 currencies. The key message of the theory is that one currency that has been changed to another in the corresponding country will have the same purchasing power and therefore the same real value.

The external price level after conversion of the exchange rate should correspond to the domestic price level. If the exchange rate deviates significantly from this equilibrium, there should be a tendency to return to equilibrium according to this model, since in principle there is a possibility of a gain.

If, for example, a computer in the U.S. (In Euros) costs less than in the Eurozone, it would be worth buying it in the U.S. and reselling it in Europe. It’s worth it. The difference between the purchase price (converted to euros) and the sale price continues to provide a profit.

However, to purchase a computer in the United States, you will need dollars. The supply of the euro and the demand for the dollar will subsequently lead to an appreciation of the dollar, with the result that purchasing power in both monetary areas is adjusted. A popular example of this model is the so-called Big Mac index. This is a simple-built index of people’s buying power published regularly by The Economist.

The basis for calculating purchasing power is a comprehensive description of the prices of a standardized and readily available product: the Big Mac at a McDonald’s restaurant. For example, if a Big Mac in the U.S. costs $ 5.28 on average, while the price in Germany is $ 3.95, the theoretical exchange rate is $ 5.28 / € 3.95 = 1.34. If the current exchange rate deviates significantly from the theoretically determined value, it would be adjusted to this long-term value according to purchasing power parity. In reality, the purchasing power parity theory considers not only a good but a complete shopping cart. Moreover, not all price differences generate an opportunity for profit, as taxes, transport costs and customs duties must be considered.

Many goods cannot be marketed worldwide, especially services or haircuts which are not transferable. Therefore, the shopping cart should only contain marketable products worldwide.

Technical Analysis

A general topic of controversy is whether the technical analysis in the currency market makes sense. On the one hand, there are so many price adjustments that many patterns can arise. On the other hand, the market is so inefficient that these patterns (theoretically) cannot function sustainably. However, most of the tools provided by Technical Analysis (TA) are well used in foreign exchange trading.

Classic graphics formations, such as trend channels or resistance and support lines, can be used, as well as the most advanced techniques of trend recognition, indicators, and oscillators, as well as candle formations. Due to the trend behaviour of the currencies, a relatively unknown type of graph is offered for the correct exchange rate analysis: the so-called “Graph of points and figures” (P&F – Point and Figure). This is a variant of alternative representation to the bars and candles graphics that are widely used.

In the foreground of the P&F table is no longer the movement of price in temporal terms, but the development of movement. Times when only small price changes (i.e., lateral movements) occur are filtered out of the table. A variant of similar representation, but more visually understandable, are the so-called Renko graphics. Both types of charts work with trend lines, indicators, and formations. When using it, you should always keep in mind that the time axis, unlike the “normal” graphics, is variable. Therefore, it may happen that the chart does not change over a longer period of time, if price fluctuations were too low or if a significant movement has not developed.

Various Time Levels

The methodology of integrating several time windows into the analysis and the resulting trading decisions are mentioned in the trader jargon as multiple time frame analysis. Due to the speed of the Forex market, this technique is particularly suitable. The concept derives mainly from 2 approaches. First, many operators check the situation in the main time window (for example, small time window: minutes chart, main time window: time chart) before entering a new position.

Only when the hourly chart does not have the resistance or support at the same level as the minutes chart and the exchange rate does not move in an opposite trend, will it enter the market. Second, many traders use this approach to enter into a long-term trend.

The smaller window often allows for a better entry time. However, once the entry is made, the operation will be managed in the longer-term chart. However, the danger of over-operation will be threatened. Instead of focusing on the long-term vision, many operators observe the position in the subordinated time frame, even after starting, and take unnecessary risks. If you consider support and resistance, you should start at the highest available time window and advance to the smallest primary unit in time.

Intermarket Analysis

The dollar, of course, is the most important currency in the world’s financial system. Consequently, the dollar index is excellent for analytical purposes. Just look at the index to read the strength or weakness of the dollar against the main currencies: if the index rises, the dollar shows strength against the other currencies. If the dollar index falls, this indicates a weakness against the other major currencies. To measure even how a known currency is developed one compares its value with a basket of 6 coins. Specifically, this is the weighted geometric average of the US currency in euros, Japanese yen, British pounds, Canadian dollars, Swedish krona, and Swiss francs.

Market observers, who are interested in the interactions of different asset classes, know that the United States dollar plays an important role in cross-market analysis. From the historical development of the price, it can be clearly deduced that the global currency has a long-term negative correlation with the commodity market.

You can see how commodities entered a massive bearish trend, as the dollar index had a brilliant rally in mid-2014. For this reason, the United States dollar or the associated concept of the United States dollar index plays an important role in cross-market analysis, which examines the interactions between markets.

Appropriate Strategies – Long-Term

Now that we have learned a lot about currency market theory, we also want to deal with its practical application. To this end, we present two strategies that are interchangeable, on the one hand, in the long term and, on the other hand, in the short term. The carry trade is well known in exchange operations. Behind it is a simple system: funds are generated in a low-interest currency and invested in a high-yield currency. The difference between interest rates and the change in price is most important.

If the exchange rate does not change during the investment period, the return on the carry trade equals the interest rate spread. Also, a rise in the price of high-interest rates versus low-interest rates will lead to a further increase in revenue. In this case, the return on the interest rate advantage is further increased by the favourable development of the exchange rate. On the contrary, a devaluation of the currency in which it is invested leads to a reduction in yield.

If the percentage devaluation is above the interest rate spread, the trader loses money. If there are significant fluctuations in exchange rates to the detriment of the investment currency, the strategy could incur correspondingly high losses.

Carry trade is a popular strategy for hedge funds, as they are suitable for large sums of investment. Fund managers seek to identify macroeconomic developments at an early stage and make cost-effective use of appropriate strategies. In the same context, there is often debate about leveraged carry trades. Only part of the negotiated sum is deposited as collateral, taking advantage of existing capital. A Deutsche Bundesbank study in 2005 based on carry trade in euros against the dollar shows an average yield of 15 %, a multiple of the interest rate spread. A maximum of 71% profit would be possible.

However, annualized yields can vary widely and be markedly negative from month to month. Although carry trade is a long-term currency strategy it represents an interesting trading approach in the past and today. However, due to the high potential for detractions, the risk should not be underestimated. Rapid market movements can wipe out accumulated earnings in months or even years.

Appropriate Strategies – Short-Term

For short-term traders who want to generate profits in the volatile phases of the market, there is the breakup strategy of Maite Krausse. Breakage trading is a strategy used by many professional traders that offer satisfactory results in both swing and intraday trading. The best results are achieved in the volatile market phases or in strong trends, with uncertainty between market participants and continuous sidesteps minimizing the likelihood of successful entries. First, the range is displayed from 24:00 to 08:00 Central European Time (CET) on the 15-minute chart.

At this time, the maxima and minima are determined. Highs up to 8:00 a.m are considered the upper limit or resistance range, and lower prices represent a support level. If the price is now above the minimum marked or below the minimum, a purchase order is placed between 2 and 5 pips above the maximum, a sales order of 2 to 5 pips below the minimum.

This range is only valid during the respective day, after which it must be redefined and is therefore ideal for intraday traders. Orders are still valid until around 21:00. Thereafter, all pending orders are removed and redefined the next day. Once a purchase/sale order is activated, the transaction is carried out throughout the day, with a risk/probability ratio (CRV) of around 2:1 on mostly quiet days and a CRV of 4:1 on economically important days, given that the interest rate is a country’s decision.

For example, the loss limit (SL) can be set between 20 to 30 points. Profit-taking (TP) ranges from 40 to 100 pips, depending on market fluctuations. Therefore, a smaller TP will be chosen in the quiet phases of the market, and a higher estimated TP in days of interest rate decisions and global political events. Trading management is simple and must be set with an automatic limit of approximately 15 to 25 pips. In addition, in the 1-hour chart, you should pay attention to the areas of resistance or support in the area of the alleged inputs.

Therefore, a purchase order above the resistance, and a sale order below the support will be established. The most likely to benefit from this strategy lies mainly in the evolution of macro-influenced prices. Then, it is very useful to have a look at the daily economic calendar, as the greatest fluctuations are accompanied by surprises and new knowledge about the economic situation of a country and, therefore, the respective currency.

Particularly interesting are central bank decisions or protocols that provide directional indications. In those days, sometimes the profit can be generous around 100 or more pips. Inputs can be further improved by including breakdowns of price patterns such as upward and downward triangles, double floor/roof, and head and shoulders formations.

If the price has formed as a pattern, you should be careful and tune your inputs, because the buds of these patterns are often traded and are volatile. Another way to identify good break opportunities is through certain candle patterns that have formed on the daily chart. For example, the inner bar candle (also known as Harami bassist/bassist), can predict an imminent break, both in trend and in reverse, which is often used.

There is an inner bar formation when the next daily sail is of a different colour (day 2) and has its maximum and minimum price within the previous day’s sail (day 1). The entry is set on day 3 above/below the maximum/minimum sail of the second day.


The Forex market offers interesting trading opportunities that allow private traders to benefit from exchange rate changes. Whether it’s in the area of classic day-to-day operations, as well as to protect against price fluctuations or as a mix of separate strategies in the custody account. The advantages lie in the high liquidity and flexibility of the market and its 24-hour operation.

Moreover, foreign exchange markets always offer clear short-term trends. With trading margin and leverage, Forex is especially interesting for low capitalization traders. Operators also have the opportunity to choose between a more flexible interbank market, on the one hand, and standardised products, on the other. An investor will be able to choose from numerous trading instruments and strategies and combine them if necessary.

Forex Psychology

Emotions and Success in Long Term Trading

Trading is emotional for most of its participants. Your own emotions added to the emotional side of the market will largely determine whether you will end up a trading day as a radiant winner or whether you will leave the market as a downcast loser. Not in vain, there is the following saying among experienced traders, “buy fear, sell greed”. This article is designed to explain initially why a discussion about emotions is essential to success in long-term trading and to show you later how to conquer the poisonous cocktail of fear and greed as well as how to use it to your own advantage.

Both academic and non-academic work on stock market price action has multiplied in recent decades. Many of these trials quickly show an overview of the basic problem we are going to address. However, they fail to provide you with the tools you need to succeed every day on the market. Therefore, I will only show you here an incomplete outline of the results of this research. This incursion into theory will clearly reveal the weaknesses of some of them and, at the same time, will answer the question of why the psychological-emotional part of market analysis is so important. Moreover, this market approach can be of great help to you.

Weaknesses in the Efficient Market Scenario

First, mention should be made of the fact that the two poles of investigation of the market efficiency hypothesis and behavioural finance have been more or less at odds for decades. Despite the fact that the efficient market hypothesis was created by Eugene F. Fama in the 1970s, it has since contributed significantly to describing markets and prices through simple models, making them more transparent. In short, this assumption assumes that markets will be efficient when markets reflect all available information. However, trading costs, as well as any existing information asymmetries between different groups of market participants, are not taken into account. Particularly questionable is the postulation of the hypothesis in its strict form, which indicates that the success of the investment of professional participants is more a random process. However, many traders who have been successful for decades have shown that the opposite is true.

Only behavioral finance can provide a plausible explanation for extreme volatility.

For a long time, markets were dominated by the efficient market scenario. However, as illustrated in Figure 2, the 1980s were characterized by an extreme increase in stock volatility, which was obviously impossible to explain by means of Fame theory. We had reached a point where it no longer made sense to look at markets without including human emotions. Therefore, the theoretical design of behavioral finance is equivalent to a revolution and rupture of a taboo, making the ivory towers of academic dogma tremble. Suddenly, the psychological variables of human behavior were especially those that had to be taken into account in such a way that the behavioral finance center was the main cause of the formation of bubbles in prices and the appearance of periods of high volatility. Since the limited rationality of market participants means that adaptation strategies, called “heuristics”, have had to be used in decision-making, information acquisition – to name just one example – may increase the cost incurred by market participants. Each operator is familiar with it, as it is part of their daily operation: When things get lively in the markets, they tend to look at prices more often.

When Emotions Become a Problem

You want to maintain some control over the market in which you operate. But in turn, it wastes time, creates unnecessary stress, and, if you are not careful, can even lead you to an impulsive operation. But if you have put the stop loss, and stick to your risk management, you don’t have to worry as you don’t control the market anyway. The real benefit of heuristics, the decision-making for saving resources, weakens, and in the worst case, deviates from the right path. You may act compulsively just because the market has again moved a few points against you. Despite your determination to comply with your negotiation strategy, you find yourself acting too quickly and drawing biased conclusions caused mainly by your emotional perception. For example, you have been able to decide that you want to make a profit on the operation you have open and give you “a little more leeway”. Novice traders often follow this process of increasing the stop-loss distance.

However, this behavior can completely undo even a sophisticated risk management strategy and significantly reduce your trading capital. Therefore behavioral finance comes with a statement that is diametrically opposed to the efficient market hypothesis: Because of the many incentives, the behavior of market participants, and the allocation of capital, financial markets are not efficient. Both suffer from information costs and psychological constraints. Each trader, whether private or institutional, knows from their own experience that decisions about individual trades are often made based on rules. The basic problem is that these decisions can be ‘colored’ emotionally.

Emotions also obscure the fundamental value.

Until recently the debate in the academic literature has been dominated by so-called “limits of arbitration” of mental construction. This implies that the fundamental price of an asset is of vital importance. Therefore, irrational price deviations are only allowed for a limited period of time due to arbitrage (risk-free profit) by rational investors. However, so-called “noise traders” do not look at the core values of a stock. They buy and sell in such large quantities that rational investors have difficulty closing the gap between fundamental rational value and actual market price. What matters here is the sheer power of the market. If you are aware of it you will be able to protect yourself according to the motto: The market is always right.

Rational Versus Irrational Behaviour

So far this article has focused on describing why dealing with the world of emotions is of vital importance in trading. Attempts have also been made to illustrate how emotions can put their results at serious risk. Now, however, we will move from the grey world of theory to the real world of everyday practice. How to transform past knowledge into operational success?

To this end, decision-making between rational and irrational behaviour must be optimized. As a trader, you should primarily learn how to quickly decide which ìtone’ is displayed by market participants; that is, whether in certain phases emotional behavior is more rational, or more irrational. That is the decision making in the outside world that can be explained very well with specific examples of trading.

Decision-making in the “Inner World”

A little more difficult, but essential to success in trading is the way to a correct interpretation of your own emotions. Especially in discretionary trading, emotions can never be ruled out. Anyone who says otherwise is denying human nature. So you have to learn to have companions of your emotions that you listen to carefully and keep in check the impulsive need to operate as your imagination will be conducting a riot. The first and most important rule is: In any situation, stay calm and don’t panic. True, that sounds easier than it looks in reality. Emotions have a powerful impact and will suggest you change your behavior. Now, how will you achieve the specific level of inner peace that is needed to operate successfully?

Don’t take pressure on yourself: Are you nervous about your friends and colleagues telling you stories of your countless successes? So it is adding an additional pressure to itself that it does not have to bear. If you fail in your trading, you can rest assured that you will be greatly affected and criticized. Instead, trade only for yourself. Look at it as a game you can’t win if you’re completely relaxed or with your knees completely straight. The optimal state of mind must be between fear and greed, which is also called “respect for the market”.

Pay attention to your diet: dairy products contain catalase, table salt is a chloride, and wheat products contain gluten. Taking these substances will change your digestion from aerobic to anaerobic, while activating a number of hormones in your body. Do you have the feeling of not obeying yourself? Maybe it’s because your hands are tied by your diet. It’s not a good omen for success in trading that, among other things, has a lot to do with reconciling yourself with your emotions. Try to lead a Spartan life for three months. Your health and trading account will thank you. Institutional traders are supported by entire risk departments. As a private trader, you operate on your own and what you need to succeed is to keep your head clear.

Analyze yourself: the traumas of the past tend to turn against you in troubled times and markets are the perfect breeding ground for it. Make an agreement with them, otherwise, they will show up again and sabotage your trade. This process will take years to complete. The stock market is an expensive location to investigate who you are. Therefore, use the time during which you do not operate to work yourself. It will be cheaper for you. Meditation and yoga can really do wonders.

Stay calm and don’t let others run your life: Not everyone needs to know what you do to live or earn extra income. In human relationships, many things happen subtly causing emotions that are a nuisance. Someone says something stupid and you’re thinking, “Wait and see, I’ll prove it to you”. In this business, you have to have thick skin. In most cases, getting angry involves making the mistakes of others. Don’t get carried away and don’t do impulsive operations.

Enjoy something enjoyable: Consumption financed by the benefits of trading will reinforce your positive feelings. These in turn will manifest in the neural circuits of the brain. Then you will begin to think like a winner.

Decision-Making in the Outside World

Now that we have seen how you can get a better view through the “inner world” of your emotions, let us open ourselves to the outer world. For traders, it is worth looking at the picture from the outside, for example, to analyze the “greed and fear index” reported by CNN Money which can also be used in intersectoral analysis. This indicator is based on seven sub-indicators with equal weighting among which is the VIX (CBOE volatility index), which is a typical measure of fear and momentum of the S&P 500.

This index is shown with values below the 25-point line which indicates a growing fear among securities operators. On the contrary, securities above 75 points are a sign of increased greed in stock markets. Its peak in 2007 was a good indicator that warned traders in time against the crash and also generated a good investment signal in 2009. However, it reached another peak in Q1/2012 generating a false long-term selling signal.

It is not the Holy Grail but it is useful when combined with filters.

After the above, we deduce that this isolated indicator has limited validity. But however, combined with filters such as market profiles or economic data, quite reasonable results are achieved. For example, the use of market profiles allows you to see well that novice operators operate in areas where prices are very low in volume. It is because their operations are often determined by fear. Only after the professionals have cashed out, the novels will overcome their fear and get in the car. Often, by then, it will be too late.

The situation makes one thing clear: A market sentiment that is characterized either by extreme fear or extreme greed deserves the trader’s attention. Often when everyone is afraid it is worth entering. However, keep in mind that a good investment sign combined with various counter-trend techniques is the best insurance against bad surprises. In the long run, markets will only move along the macroeconomic pathways. Therefore, a change of trend in the markets is always preceded by a very important development of the economy.

Unfortunately, what happens very often at the really relevant trading points are abrupt moves. Several hundred points in a day are not uncommon. But, obviously, you must also bear in mind that trends are long-lasting. This is where, statistically speaking, value will be rewarded in most cases, as long as volume is still important.

Concrete Advice

Most neophyte traders don’t see market action as what it really is, that is, a brutal business. What can you really do now to use the phases of greed and fear for your own benefit? A good preparation: Treat each operation with utmost care because a good preparation is the best way to deal with emotions. In professional trading, any real trade has been preceded by many hours of research. In particular, unconventional news sources such as the or are good early indicators. The moment the stock market lets you see where you’re going, it’s usually too late. So make sure you devote at least eight to ten hours a week to studying the national and international press.

Working a scenario: Are you an intuitive operator? So much better, in that case, what you need is to regularly feed your intuition. Every second, the human brain is bombarded with 600-900 million bits of information. Most are processed unconsciously and largely determine their behavior through the decision-making process. All this is illustrated in Figure 5. Trading in the stock market is like a game of chess. It is necessary to create a scenario based on the information provided. Those who prepare their scenarios will see their operations in a much more relaxed way and will be free from fear and greed. If the scenario that we have prepared is not given, so much the better. In that case, we will use the loss stop and rethink the situation.

Never beat too much: As a trader, sometimes there will be too much risk in the market. Your initial greed will make you experience a feeling of discomfort that will worsen second by second before it finally turns into sheer terror. ¡ That fear is justified! You just over-leveraged your account and now you can inflict a lot of damage on it at any time. Among other things, the line between gambling and trading is determined by leverage.

Put loss stops: Do you often operate in the market without using loss stops? We must have the courage to do this because in the fast markets legitimate fears will be triggered.

Do not operate too much: Operate when you are mentally well prepared. If you operate the same way you play in a video game, your subconscious will be absolutely thrilled but the stock market will soon teach you a very tough lesson.


How you deal with your emotions will be the key to your success or failure in the stock market. Have the time to work yourself. Profitable trading is not a closed book, but the result of hard work applying a good strategy, with reasonable assumptions and, above all, control in itself. Only when these three factors interact properly will you be consistent with what happens and thus be able to succeed, such that you will catapult your trading to a new dimension. Keep it up and remember: never be too serious, never too informal – in the middle is just what works best.

Forex Psychology

Behavioral Finance: How Can it Help Us in Our Trading?

Due to recent developments at the global level, which led to “abnormal” behavior in the financial markets, I consider it very opportune to insist on the main contributions made by the discipline in charge of studying the behavior of investors in the financial markets, commonly known as Behavioral Finance.

Behavioral Finance: Recent Moves in the S&P 500

The discipline responsible for studying the behavior of investors in financial markets, commonly known as “Behavioral Finance”. This discipline is the one that has had more transcendence in these years and it is the one that has been making great contributions to be able to explain what previous theories could not. Recall that previous theories based their analysis and conclusions considering or assuming that investors were rational, It is precisely where this new theory of behavior tries to focus and therefore allows us to better explain many of the events we see in the markets and that rational theories cannot.

Although historically there were contributions and ideas about the behavior of individuals, It was only at the beginning of the 21st century that this new trend gained strength when Daniel Kahneman was Nobel Prize in Economics for Study and Analysis psychology concepts in the economic area. Shiller and Thaler later received the same award for contributions that considered aspects in this regard to the economic academy.

Ultimately, academics and analysts have focused in recent years on aspects of investor behavior and psychology. Daniel Kahneman was Nobel Prize in Economics for incorporating psychology concepts in the economic area. Shiller and Thaler later received the same award for contributions that considered aspects in this regard to the economic academy.

In order to simplify, the theory of “Behavioral Finance” holds that most decisions of human beings are carried out thanks to “shortcuts” This means that many decisions are made without carrying out a strictly rational analysis process. Based on personal experience and characteristics, individuals make decisions without each of them involving a thorough analysis of decision-making based on a purely rational process.

The theory holds that there are inefficiencies or market failures, either due to errors in the valuation of assets or in non-rational decisions. The origin of these inefficiencies is, according to the theory, due to the fact that individuals have limited rationality that is produced by how they perceive the problem to be solved, the cognitive limitations, biases, and the time available. These issues lead individuals to make decisions that are not optimal from the rational and analytical point of view of the problem, but that allows them to reach a decision that satisfies them, explaining then why many times individuals do not behave in a rational way as expected by previous theories.

“This article is not intended for in-depth study into the theory but rather to take its main contributions and apply them to current reality.”

The aim of this article is not to delve into the theory but rather to take its main contributions and apply them to current reality. After many years of outstanding performance in the stock market, we face an extremely uncertain scenario, a significant increase in volatility, and a reaction from major central banks that leaves them feeling that they sense a recessive scenario.

We can’t be absolutely sure how much the real impact of the coronavirus will be or for how long, but what we can begin to conclude is that it triggered a change in expectations and behavior on the part of investors, consumers, and entrepreneurs. As much as the effect of the virus is temporary, it caused damage in more fundamental matters, remember that we are in the longest economic cycle in the United States and the actions were recording historical highs.

It is for the above mentioned that we have seen a chain reaction that was aggravated by the precipitous fall of oil, generating a 30% drop in a day, because there is no agreement between the oil producers and also the psychological effect of negative rates that seem to be arriving in the United States. In other words, these are events that were in the making but that were reinforced by the sequence of episodes that we marked earlier.

Behavioral Finance: Oil Price Developments

Evidently, these events impact all investors, from anywhere in the world, and who invest in any kind of asset. In addition, there was a strong impact on the currencies of several emerging economies that will undoubtedly lead to consequences that these countries will have to manage. In this scenario, where no one escapes, investors must make decisions and as we marked it at the beginning, we are all subject to our own biases, characteristics, and cognitive limitations.

That is why everything is complicated because investors feel they have to react to the behavior of the market, they sense that the time is limited and all this leads to the investor’s decision-making process not being optimal or even making mistakes when obtaining unwanted results. It is not easy to tolerate market sessions where on average 4% to 7% of the value is lost, this is precisely the factor that conditions us.

“Therefore, everything is complicated, because investors feel that they must react to the behavior of the market, they sense that the time is limited and all this leads to the decision process on the part of the investor is not optimal.”

We could list a huge number of biases that arise in a very marked way in adverse market situations such as inability to make losses, acting on what others do or what the media say, confirmation bias, Selection bias, etc. During the fall of the market, we have seen how investors are more aware of the evolution of the market, of the news and we have seen how they are prone to take decisions adjusting their portfolios.

“We could list a huge number of biases that arise in a very marked way in adverse market situations.”

In my experience, a lot of investors tend to make decisions at the worst time, in situations where the current scenario distorts and influences decisions. More than ever, and the recent fall is a demonstration, the investor must have a clear investment strategy in advance and what adjustments will be made to difficult market conditions. After having a plan, it is essential to generate a habit of discipline. It is logical that strategies or plan can be improved, but should never be modified in adverse scenarios.

The plan has to be designed so that: the investor can fully consider the options, analyse how the plan would have worked under complicated conditions, how it fits personal characteristics and, if possible, simulate different scenarios. Having a plan allows you to cope better with these events because the investor is prepared, already knows what to do, and is aware that it is not time to make discretionary adjustments.

“A lot of investors tend to make decisions at the worst time, in situations where the current scenario distorts and influences decisions. More than ever, and the recent fall is a demonstration.”

They seem simple but the reality shows that they are not habits that are incorporated in a generalized form in the retail investors nor is it usually measured what is the cost of losses that must be assumed for not implementing a plan and carrying it out in form disciplined.

It is very apt the phrase that many experts point out regarding the fact that the main “enemy” of an investor is himself, this phrase points to the fact that the problem is not the market but how we react to it.

Forex Psychology

Seven Cognitive Biases that Can Impact a Trader

I’ve always liked to investigate cognitive biases. Not being aware of them, could directly ruin a trader’s career or simply prevent someone from being a winner in the long run. This is because many of them are directly related to the basic principles that make it possible to win consistently in trading. And in turn, on these principles, the different strategies are constructed.

In this article, I will explain 7 cognitive biases that cause us to make incorrect decisions in trading, what effects they have and some recommendations to try to solve them.

What are Cognitive Biases?

During the course of the day, the human brain makes an average of 35,000 decisions, but we are only aware of less than 1%. We can walk down the street looking for a pharmacy while we have a conversation with a friend, eat a sandwich and our body regulates all our bodily functions. And we do all this simultaneously without having to think about it.

This is possible because our brain takes mental shortcuts to be able to make judgments and decisions quickly and thus respond to certain stimuli, problems, and situations. And that’s where cognitive biases come from, which are situations where these shortcuts make our mental processing wrong and lead to distortion, inaccurate judgment, or an illogical interpretation of information.

Cognitive Biases and Trading

There are dozens of different cognitive biases, but there are some that are directly related to trading. The reason is that basically, cognitive biases can lead us to perform distorted and wrong information analysis, which in turn leads us to make wrong decisions and therefore affects our results as traders.

Examples of the negative effects of cognitive biases include:

  • Buy or sell at the wrong time
  • Getting out of an operation too soon
  • Deviating from the trading plan
  • Cut the losses too late
  • Failure to correctly analyse new information during operation
  • Stop loss gets you out of surgery for being too tight
  • Not taking an operation when we should
  • Relying on media or social media information rather than your own analysis

Anchor Bias

It’s about giving a lot of weight to the first piece of information we have when we make a decision.


It is mainly when a trader gives a lot of weight to the chart and the analysis that led him to make the initial decision and then doesn’t properly value the new information that is being provided to him.

For example, we take an operation in the face of a very strong resistance break. At this moment you are very convinced that it will be a very bullish day (basically, you are anchored to the information that is glimpsed after the «break of resistance with great force»). But as the day progresses, there are clear signs of weakness that we do not observe because we remain «anchored» to the initial vision of when we took the operation.


We always have to be able to have a plan BEFORE going into surgery and doing it in writing would be a good idea.

Analyze each new piece of information provided by the chart (if you use the technical analysis in your operation), relate it to your plan to know if it is relevant, and act as indicated if necessary.

The idea is to force us to be more aware of what is happening in each moment.

A very simple example would be:

Once inside an operation, we regularly review our plan, which says we will close our position if once opened the price does not move decisively in the right direction in the next 4 sails.

In this situation, we close the position not being anchored to the initial information and acting on the new data obtained.

Effect of the last event.

It is the tendency to give more importance to recent events than to more distant events in time


One of the ways in which this trend manifests itself is in overreacting to recent losses. Being affected by losing trades, we will unconsciously try to improve our results by avoiding others similar to those that made us lose.


Do not try to learn about recent experience but about results in longer periods of time.

That’s why it’s important to have a trading journal. We record our operations and in a large sample we analyze results, we see where they do not seem to be correct and in the case that we find a problem we try to solve it. But all about large samples, not the last four or five operations.

Confirmation Bias

Seek out, remember, and give more weight to information that confirms our beliefs, ideas, and actions.


We omit signals and reasons that go against our operation and look for only those that confirm that we are correct.

For example, a transaction goes into losses and we only look for information that is favorable to our trade so as not to close it.


Be objective with the information we receive.

One idea may be to make a checklist of factors to take into account when entering the market, going out, etc. As in previous cases, do it on paper, makes us carry out additional checks on all important things, and become more aware of them.

Drag Effect

The tendency to do or believe something because many other people do or believe in those same things.


Give more weight to news, comments on social networks, and other media than to our own analysis.

An example is when we hear that a certain bullish market is about to end and the number of negative information increases. We have long positions and our analysis shows no warning signs. But as everyone increasingly agrees on the bearish market view, in the face of any doubts that arise we will tend to close our positions.

Another more negative case is to enter directly into a position because it is what certain people or media advise without carrying out any own analysis.


To overcome the drag effect, one might think that it is best to adopt a vision contrary to that of the majority and always go against the crowd. It is not an optimal solution because the masses sometimes get it right and sometimes they get it wrong.

The solution is to develop a trading plan, stick to it, and isolate as much as possible from all kinds of opinions when we are trading. In this way, decisions will be less influenced by external factors.

Risk Aversion

It is the natural tendency to avoid losses rather than focus on making profits. Our brains don’t like to lose, and this is the way he has to protect himself.


It manifests in various ways, such as not taking positions for fear of losing when we should do it according to our trading plan. Or, for example, managing operations excessively defensively.

Let’s imagine that we buy in a price break and quickly put the stop loss in break even. But what was the reason? Has the price been turned in a way that we do not consider correct? or simply because we do not want to lose?.


We have to look at losses differently, understanding that they are a part of trading. Losses are the cost of doing business and to have winning trades there must be other losers. In the best of cases (and according to the style of each one), having a success rate of 50-55% would be a success. Therefore, the rest will be losing trades.

Result Bias

The tendency to judge a decision by the final outcome rather than judging it by the quality of the decision when it was made.


This bias has a great weight because if we only value the final result, we can make wrong decisions, be rewarded by them, and repeat them constantly. Putting an extreme example of the subject, if we cross a road blindfolded and nothing happens to us, this is not synonymous that we will have the same luck on the next occasion. Therefore, the decision was bad regardless of the final result.


Not focusing on the outcome but on the process: analyze the market, prepare in advance our operations, and execute our strategy in practice as best as possible.

Fallacy of the Player

This bias consists of the tendency to think that the probabilities of future events are altered by past events when in reality they do not change.


It occurs when a trader misinterprets randomness and may think, for example, that after 3 losing trades the next one is more likely to be a winner.


Be aware that we reason this way and understand reality: the odds of a particular event do not vary based on past results. After 10 losses in a row, the next trade is unlikely to win. Every potential new operation presented to us must be treated as an event isolated from the previous ones.

Solving the Problem of Cognitive Biases

The above list of cognitive biases is not very exhaustive, just as the examples and possible solutions I have mentioned are not. There are dozens of biases and piles of different ways in which they manifest themselves both in our lives and when trading.

Therefore, it does not make sense to know all the types that exist and their variants. Simply being aware of the main ones that affect us, is a big step to be able to make better decisions.

A possible strategy to be followed to solve the problem of cognitive biases that encompasses everything seen in the article would be:

Be aware that not all the decisions we make are thoughtful and logical. When we do an action, analyze what led you to do it. Was it emotions? Did you do it as planned? Was it motivated by any of the cognitive biases you know?

Create a trading plan that encompasses from the search for potential trades, through the execution, management, and closing of the position. Create a journal or register of operations to be able to review with a cold mind the strategies and the quality of the decisions we are making.

Forex Psychology

Trading Boredom and How to Deal with it

We’ve all experienced boredom from time to time, and in today’s day and age, the human race has spent a lot of resources developing all kinds of inventions to help us curb those feelings of being bored. Forex traders are especially prone to boredom when the market isn’t jumping because we thrive off of volatility and want to be kept on our toes. Unfortunately, some of us tend to abandon things once they become boring. We change the channel, we put down a book and never pick it up again, we lose interest and move on. Trading is no exception – many traders walk away because trading just doesn’t keep their attention. 

So, maybe you’ve tried to spice things up while you’re trading so that you won’t lose interest. You might play the radio in the background, turn on the tv, or introduce some sort of auditory/visual stimuli. You open Facebook on another tab and start scrolling away, you check your Instagram, you find something else to do. What you might not realize is that these distractions can actually have a negative impact on your trading results. If you aren’t focused, you might miss out on market information, overlook chart patterns you should have spotted, and make other mistakes. So how do you deal with the boredom without distracting yourself in the meantime?

The key here is for your mind to be focused on trading without having to multitask. One thing you can try is to trade during your most productive time of the day. In the morning, right after drinking a hot cup of coffee and eating breakfast can be a great time to really tune and focus before everyday stresses can affect you. On the contrary, you might not perform as well in the morning if you’re more of a night owl. Being well-rested is a good start to having a clear head. 

What you don’t want to do is deal with trading boredom by introducing negative habits. Some examples of this would be overtrading, forcing trades, or risking more money to feel some excitement. This might cure your boredom in the moment, but it can lead to losses that could have easily been avoided if you would have been patient. You have to think about how entering a trade just to do so could cause you to lose money and how it is completely unproductive to do so. You might feel unproductive by doing nothing, but it is better to do nothing if it means you’ll avoid losing money. It’s just like sitting at home on a rainy day – if you have to go out, you’re going to spend money. If you can sit back and be patient, you can save those funds for something else. 

At the end of the day, you’re going to have to embrace the fact that boredom will occur from time to time when you’re trading. Rather than trying to curb that boredom with distractions that can cause you to lose focus, you need to learn the art of trading discipline and patience. Try to trade during your most productive time of day and think of any activities you could do before trading to improve your focus, like jogging, mediation, yoga, drinking coffee, etc. If you’re ever feeling eager to enter a trade just because, consider the trade’s risk-to-reward ratio and ask yourself if evidence really supports entering that trade, or if you’re only looking to add some excitement.

Forex Psychology

What is the Most Dangerous Trading Emotion?

Trading psychology is a broad topic that focuses on the ways that emotions like fear, anxiety, anger, etc. can cause us to make altered trading decisions that typically result in a loss of money. For example, a fearful trader might enter trades too late or not at all, while an angry trader might take revenge trades that aren’t well thought-out in an effort to make their money back quickly.

Often times, traders that aren’t aware of trading psychology don’t even realize that these emotions are affecting them so they never get to deal with it. While some people may disagree, most trading psychology experts will tell you that greed is actually the most dangerous trading emotion of them all. 

Greed is defined as a selfish desire for more of something than is needed, usually referencing money, although food or other materialistic items can also cause greed. Every trader wants to make more money, but the greedy trader becomes so obsessed with making money that they sabotage themselves. While an anxious trader might avoid entering trades altogether out of a fear of losing money, the greedy trader is prone to overtrading and might enter trades that they shouldn’t in an effort to get as much of it as possible. Unfortunately, entering more trades is not a surefire way to make money and it is more likely to work against you, especially if you are thinking irrationally.

With each trade you enter, you need to think of the risk to reward ratio and also ask yourself if there is evidence that supports the decision to enter the trade based on your trading plan. You also might want to take smaller position sizes on trades that you’re less sure about and vise versa. However, greedy traders aren’t as likely to consider all these details because their mind is only focusing on the money they want to make. 

On the bright side, traders that are suffering from greed can find ways to overcome this emotion in the same ways that anxiety, fear, and other negative psychological issues can be overcome. The first thing you’ll need to do is accept the fact that you can’t win every time – even the best traders are wrong sometimes. You also might need to adjust your expectations if you’ve set monetary goals that aren’t realistic. In fact, it isn’t a good idea to set goals with hard monetary limits at all because of how unpredictable trading can be.

Another way you can curb greed is by focusing on goals that improve your skills as a trader. Spending a certain amount of time each day reading trading articles or practicing on a demo account are a couple of examples of positive tasks that lead to self-improvement. If you take steps to improve yourself as a trader, rather than only focusing on how much money you’re making, you’ll actually make money in the long run.

Forex Psychology

Identifying and Harnessing Your Trading Strengths

The internet is filled with resources for traders, including articles, videos, and other mediums where experienced traders can share information and tips that will help you. However, a lot of this information seems to focus on what you’re doing wrong as a trader. For example, the entire field of trading psychology seems to focus on negative emotions and the ways that they play against you. You’ll also find articles that talk about bad trading habits, weaknesses, and other mistakes you might be making as a trader. All of this is important, but you might be left wondering what you’re actually doing right if you only look at resources that tell you what you’re doing wrong. 

If you’re trying to identify your trading strengths, you can start by taking a look at your trading journal. Hopefully, you’ve already been keeping detailed notes about each trade you’ve taken in your journal to help make this step easier. If you haven’t, you should start keeping a log right now. This won’t only help you with identifying your trading strengths, but it can also help point out weaknesses and help you identify other issues you might miss otherwise. From there, try identifying your 10 most profitable trades and look for common factors among them. Did you trade the same pairs, stick to your trading plan, or enter the trades based on a certain type of evidence? If you can identify things those trades have in common, you’ll have an idea of what you’re doing right. 

Another tip is to try to identify your strengths as a trader. This can seem hard at first, especially since you have to apply the adjectives to yourself, so we’ll provide a few examples:

  • Persistence
  • Self-control/discipline 
  • Creativity
  • Open-mindedness
  • Interested in learning
  • Wisdom
  • Curiosity 
  • Humor 

Basically, you need to think of the positive traits you have and then figure out a way to apply them to trading. For example, if you have an easy time laughing even when things are tough, you could use your humorous personality to help yourself get over any trading losses, rather than feeling depressed over them. You probably already apply some of your positive qualities to your trades, but it can help if you’re more aware of these qualities so that they can be used most effectively. 

Finally, you can try asking other people for their opinions on the way you trade. This could be a close friend, family member, or colleague with trading experience, or you could turn to the internet to get help from other traders online. Sometimes, others might be able to see things you can’t see about yourself and you’ll be able to get opinions that aren’t biased. Ask your friends what they see as your trading strengths and then compare the results to what you originally pinpointed to see if they match or differ. You might just learn something about yourself!

As a trader, it’s important to identify your weaknesses so that you can figure out healthy ways to address them. At the same time, you need to know what your strengths are so that they can be used to your advantage. Try keeping a trading journal, identifying your personal strengths and comparing those results with other’s opinions, and figuring out ways to use your identified strengths when you’re trading to get the best results possible.  


Forex Psychology

Regret: Is it Negatively Impacting your Trades?

Regret is a negative emotion that we’ve all experienced at some point in our lives. Something we wish we had said, a sinking feeling in our stomach after making a big purchase, a person that we wish we had asked out, and other mistakes that we feel we’ve made along the way. Sadly, many of us feel those first stings of regret as early as childhood and we continue to find things to regret about our life choices as time moves forward. This negative emotion comes in a lot of different shapes and sizes – and it can affect forex traders rather harshly. 

When you’re trading, you obviously have the goal of making money and being successful. Sometimes, emotions come into the picture that makes you fear losing money and being left behind. To deal with that fear of losing money, you might back out of a trade sooner than you should have or convince yourself not to enter trades at all. However, it affects you; you wind up losing money because you’ll miss the shots you don’t take every time. Regret is like anxiety and fear in the ways that it controls traders and forces them to rethink everything they planned on doing. Even with a solid trading strategy and good past results, one bad move can introduce regret that will put the crippling fear of failure into your brain. 

Let’s say that you just made a trading decision and you wound up losing some money. You based your decision to enter the trade off of solid evidence that was outlined by your trading plan, but things just didn’t go your way this time. Now, you start thinking of what you could have done differently. You think to yourself “Maybe I could have tightened my stop-loss” or “I knew that I shouldn’t have entered that trade in the first place”. You daydream about what could have happened if you had made a different decision.

In another scenario, you see a trade that you want to enter but negative thoughts start to creep into your head. You think to yourself “What if I lose money?” Even though there is evidence that supports entering the trade, you decide not to. Later, you see that you could have made money if you’d followed your instincts and you regret sitting out on the winning trade. 

If either of these scenarios sounds familiar, you’re dealing with regret. But you need to know that there’s no point beating yourself up over what could have been and what you did wrong. Instead, you need to use regret to your advantage and allow it to give you that extra kick of motivation you need. Think of things this way: if you’re the trader that is avoiding trades because you don’t want to lose money, you’re likely losing more money on the trades you don’t take than you would if you took them. If you enter a trade that goes against you, you should evaluate what happened and figure out what went wrong. Don’t daydream about what could have happened, figure out if you made a mistake and learn from it instead.

If you learn to take control of emotions like regret, you’ll come out with a better trader for it. There’s no point sitting around thinking of what you’ve done wrong when you could learn from it and move on. Likewise, daydreaming about a trading move you wish you had made won’t put more money in your pocket. You’re probably going to feel regretful when you lose money, but you simply need to learn to let the emotion evoke a healthy response instead of letting it turn into fear and anxiety. In the end, you have to learn to keep regret from controlling your life. Rather than regretting things you can’t change, you can make better decisions in the future.

Forex Psychology

Avoid Psychological Mistakes that First-Time Traders Make

Psychology can affect one’s success as a trader in many ways, some of which may be more obvious than others. After all, forex traders can feel happy and overconfident when they’re up, sad or angry when they’re down, and everything in between. If you’re new to trading, it’s important to be aware of all the ways that emotions can affect your thought process in order to help or hinder your trading decisions. Start by taking a look at these 5 common psychology mistakes below to make sure that you aren’t making them.

Mistake #1: Being Overly Confident

Some traders start out with the idea that trading is an easy and quick way to make money. Of course, if that were true, everyone would do it. Trading can be profitable, but it takes a lot of time and dedication to learn everything you need to know and to develop a solid trading strategy. You need to be disciplined and will probably spend some time learning how to control your emotions. Traders that start out feeling overly confident are also more apt to make certain mistakes, like overtrading, taking larger position sizes than they should, risking too much, and so on. An overly confident trader is also likely to start out with heightened expectations and might want to quit if they can’t meet those goals. These mistakes can put you on the fast track to wiping out your trading account. 

Mistake #2: Being too Emotional

In order to be a successful forex trader, one needs to learn to be disciplined and control their emotions. This is easier said than done. You’re bound to feel upset when you lose money, happy when you make money, and so on. However, these emotions can affect your trades more than you realize. For example, a trader that loses a few times in a row might become angry and take up revenge trading, which involves risking more money out of desperation to get back their losses. Or the same trader could become fearful or anxious and might overthink their trades or be too afraid to enter trades at all. If you’re feeling emotional, the best thing to do is step away, even if only for a few minutes. 

Mistake #3: Overthinking your Trades

An anxious trader might place their stop loss and then overthink it to the point that they pull out too early before the stop loss has been triggered. At this point, you might find that the trade goes on to make more money. Pulling out of trades too early is a common psychology issue that is based on fear and anxiety and is even more common after a trader has experienced bad luck. The final outcome of your trade should be a stop loss triggered, breakeven, or profit taken. Once you enter the trade, the best thing to do in this situation is to leave it alone.

Mistake #4: Jumping into a Trade too Soon

Traders usually make this mistake because they are eager to enter a trade due to the fear that they are going to miss out. This is especially true at market turning points. Experts say that it’s better to miss the beginning of the move if you can’t predict that it will be a winner. If you’re able to confirm that the last 50% of the move is a winner, you’ll get much better results than you would if you jump the gun on these types of moves. 

Mistake #5: Taking Losses Personally

One of the first things you need to accept as a trader is that losses are inevitable. Even the best forex traders out there have lost at some point or another. Some traders fixate on their losses and allow themselves to become resentful. Others might beat themselves up because they failed. The best way to deal with losses is to remain calm and remember that they are normal. Then, you can examine what went wrong to see if it was something you did or an unavoidable loss. If you did something wrong, simply learn from your mistake and move on without making yourself sick over it.  

Forex Psychology

Avoiding Burnout While Trading Forex

Forex trading can be stressful. Anyone that tells you otherwise just won’t have come across one of their bad patches yet. Every single time you trade you are being put in front of a number of different stressful situations, as they begin to build up it can cause stress, frustration, and ultimately causes burnout.

I am sure that there have been times in your life when you have been doing something repeatedly and you end up thinking that you can’t really be bothered to do this or that it is incredibly boring. This is often referred to as burnout and it is quite common amongst forex traders, especially if things haven’t quite been going the way you intended it to.

The good news is that there are ways to avoid or at least reduce the effect that it can have on you, it is important to recognise the signs and put into place some things that can help you to relax and unwind, otherwise, a burnout could cause a complete loss of motivation or even trading mistakes that could cost you money.

Spot the Signs Early

It is often quite hard to spot when you are going through a tough spot, a lot of the time it is normal for you, so it is important that you are able to recognise the signs of burnout coming up so you can quickly do something to help alleviate the issues. You can spot these early signs by asking yourself a few questions, they are quite straight forward but the more that you answer yes to, the more likely you are on your way to burnout.

  • Do you have feelings of self-doubt?
  • Do you question why you are trading?
  • Are you suffering from headaches?
  • Are you still sticking to your strategy?
  • Are you eating more or less?
  • Are you drinking alcohol more often than usual?

Ask yourself, if just one is yes, then take a break, if more than one is yes, then you may be on your way to mental burnout.

Take a Break

This is a simple step to take, simply step away from trading, for a day, 2 days, a week, whatever you think is necessary for you to alleviate some of that stress or thoughts of self-doubt, use this time away from trading to exercise eat healthily and simply clear your mind of trading and the stresses that come with it.

Think Back to the Start

What we mean by this, is to think back to when you started trading, the excitement that it brought, the new experiences, and the feeling of learning something new and being able to implement that into your trading strategies. Use that feeling that you had, use it to help kickstart your own passion for trading, this will help you to focus on some of the better and more positive sides of trading rather than the stressful ones that have put you into your current situation.

Find a Friend

This can be taken in two ways, you could look for someone outside of trading to speak to or to simply spend time with, time with others is a great way to get rid of stress, as long as you like them that is. Then there are trader buddies, these are people who also trade that can be there to discuss what is going on, the good thing about having a friend that also trades is that they will have also experienced the exact same things that you are now going through, they will be understanding and may even have tips on how they avoided or got out of a burnout situation.

Get Pampered

Complete relaxation and clearing of your mind, a little similar to taking a break, but this time it is all about you, you need to do something that you enjoy, whether that is a massage or a game of tennis. Think about you, cater to your own needs and loves, this is a fantastic way to reduce the risk of burnout as it clears your mind of the issue and you gain that adrenaline and euphoria of doing something that you truly enjoy.

Ask for Help

Do not be afraid to ask for help, if you go into burnout and still try to stick with it, it can be damaging not only for your trading account but for your overall physical and mental health. The worst thing you can do is try and push yourself through it. There are people around, both friends and professionals who have been trained for this sort of thing, there is no harm or shame in asking them for a little bit of help, in fact, it is strongly encouraged. The good thing about talking to professionals is that they know all the signs and they also know a lot of things that could be causing them, in fact, you may discover that your burnout is nothing to do with trading at all and is instead something that you have locked away inside or didn’t even think of as stressful.

Being able to recognise the signs and then take control of them is the key to avoiding and getting out of burnouts, it is not a good place to be but there are things that you can do to help avoid them and there is also help available out there should you need it. It is something that we all go through so it is nothing to be ashamed of, look after yourself and then you will be able to look after your trading.

Forex Psychology

How to Approach Trading Changes Positively

Change, something that you either love or absolutely loathe. Whichever approach is relevant to you, you are going to need to embrace change in life and especially when trading forex. There isn’t a moment that goes by where your single trading strategy or plan will be 100% correct. The markets change, you need to change with them, adapting to whatever is being thrown at you. It is a challenging thing to do, but a vital skill to learn.

If we take a little look at people who really excel in their field, people who do a fantastic job of getting to the top and then staying there. Let’s take a look at Taylor Swift, nothing to do with trading but bear with us. When she started out she was shy, her music was based around country themes, all about love and romance. However the generation of people who grew up with her started to get older, their taste in music began to change and so then Taylor had to change also, if she remained the same, she would have lost a lot of fans. So instead, she adapted, she changed her music, constantly, there were never more than two songs with a similar theme in a row, this enabled her to keep her fans interested and engaged in her music. She did this and it worked, she is now more popular than ever.

This same way of changing to the needs around you can be seen with many other successful people. Warren Buffett had to adjust his style when the first few investments didn’t go the right way, Michae Jordan had to change his style of play early on in his life after being dropped by his high school team. The thing that all of these people have in common is the ability to change and adapt. If you wish to become a successful trader, then you are going to need to learn how to do this yourself because lets be honest, the markets will change, they can change hour to hour, if you are not ready to change with it, then you will be making some mistakes and you will be making some losses.

One of the things that makes a lot of traders fail is either their inability to introduce some of the much-needed changes or simply that they are unwilling to do it. Traders can very easily get stuck in their own ways, they have been successful in the past so the way that they see it, is that their strategy will be successful again in the future. This is a mentality that a lot of people get, but it is also one of the most dangerous as it will only lead to losses, potentially major losses when the markets have changed.

So let’s look at things in a way that is probably more familiar to you. Let’s assume that you have a scalping strategy, your strategy relies on the markets to be going sideways, ranging up and down between particular ranges. This works fantastically when the markets are doing what you want them to do, the problems arise when the markets begin to shift, they begin to trend. You’re now trying to scalping the opposite direction to a trending market, this will lead to either a large loss or a lot of little losses, neither of which are great. If you are not able to adapt to this situation, to change your trading style, or to completely step back, then you are going to end up losing out, so we need to work out a way that you can alter your current strategy to better suit the current situation that the markets are in.

So we have an understanding that we need to make changes, that is the first step and is certainly a good step. So we make a change and of course, we test it out on a demo account. We have done that and it has worked, so we jump straight back into a live account to put the changes to practice. This unfortunately may bring in new challenges, every change that you made on the demo account will have a subsequent effect on other aspects of your trading such as your risk management plan, so simply making that single change may well have messed up the rest of your trading plan, making things a little more complicated and it may not actually improve your overall results.

It is easy to change things with your strategy, but not every change is a good change. You can very easily make a change which makes things even worse. You need to have an understanding of what changes are needed to be made and also to have both the fortitude and the discipline in order to practice with the new changes and to gain the necessary information and knowledge that comes with them in order to effectively work out whether the new results are actually positive or negative. Many people simply stop halfway through their new testing because they do not feel like it is worth the time, or they do not have the understanding that these changes take time and will often need additional tweaks to them in order for them to be fully effective.

So in order to ensure that you are able to make these changes and to make them in an environment where you are safe and more importantly your account is safe, we do this in a number of different ways. The first is of course on a demo account, every single time that you make a change to your strategy, no matter how big or small, you need to look to test it out on a demo account. This allows you to try it over an extended period of time, in an almost live environment. You need to test it out for a long period of time, not just 4 or 5 trades. Use this opportunity to tweak things. The longer you practice with it, the better your understanding of how these changes have affected your overall trading plan.

The second is to simply review charts, this does not give you the hands-on and true trading feel, but it is vitally important. By reviewing the charts, it enables you to figure out what you could have done during the day and what you could have done differently. This is invaluable as it means that the next time that a similar setup appears, you will know exactly what it is that you need to do. It’s like a sports game, they watch back over the game afterward to find out what went wrong and what could be done differently, so the next time they come up against that opposition, they will be able to deal with the threats and the team a lot better. Do not be afraid to spend some time looking for what you need to do differently, your future self will thank you for it.

So those are two methods that you can use to help implement some change. Remember that change needs to happen slowly, but the most important thing is that change needs to happen. Do not sit there hoping the markets will come back, they won’t, they will simply punish you further. So think about what you need to change, get an understanding of it, and then implement it.

Forex Psychology

Dealing with Trader Frustrations

Frustration is a part of life, often it occurs when something we didn’t want to happen happens, or more work is created, frustration is also quite prevalent when Forex trading due to the nature of the markets, and things can easily turn against you.

Frustration can lead to further psychological doubts in yourself or your abilities to successfully trade, it can put a hit on the confidence that you have in your trading plan and can also lead to rash decisions being made in an attempt to alleviate any frustrations that maybe there. Nobody likes things going against them so this feeling is natural everyone experiences it, what is important is finding ways to reduce the levels of frustration that are benign felt.

Do Not Blame Yourself

This is probably one of the more powerful ways, but unfortunately, it is also the hardest. When you have had a couple losing trades on a row, self-doubt will begin to creep into the mind of even the most experienced trader. ‘I must have done something wrong’, ‘I am not any good at this’, those are some of the thoughts that may start moving through your head.

The thing is, there is no point in blaming yourself, how would that help resolve the current situation? No one is able to predict upcoming news events, sudden turns in the markets and so everyone experiences losses, that is simply part of trading. Even the biggest corporations in the world make bad trades, you need to use this as an experience to learn from what went wrong, not as a self-loathing exercise which doesn’t help you or your trading.

Don’t Change Your Strategy

Just because something went wrong, it does not mean that your strategy is useless or wrong. Many traders after a couple of losses get rid of their strategy and start looking for a new one that is currently working. This is not a good strategy to take, this will have you jumping around different strategies every could days or weeks, you will not get a chance to actually learn anything from them.

Instead, look at what went wrong, which part of the strategy let you down, then you are also to work out ways to adapt it to be more successful, not only does this give you a better understanding of how your strategy and also the markets work, but it also helps you to prevent any future frustrations that may come from a new strategy also taking some losses.

Check Your Routine

Sometimes a bad trade can come down to something as simple as missing a little bit of analysis, when something goes wrong, use your trading journal to find out what may have caused it, often traders get themselves into a routine, while this is great, it can also lead to serial mistakes being made if your routine misses out a certain bit of analysis, something as simple as checking the upcoming economic news events, then you will forget to do this every single time, and then you will potentially lose every single time a news event takes place during your trade. Sit down and go through your routine on paper, you can then analyse what you have done and whether you have missed anything. You would be surprised how many times people look at their routine and realise that some of the most obvious things are missing.

So when you start to feel frustrated, just know that every other person that has ever traded has felt the same thing, even those that are now professional and making full-time livings from it. Don’t jump into any rash decisions on your strategy, or begin to doubt your own abilities, you are able to be a successful trader, it is all about making small adjustments with each loss until you start to become profitable. Stick at it, believe in yourself and you will be on your way to being a better trader.

Forex Psychology

Common Psychological Mistakes For Newbies

There are psychological mistakes that you can make at any time during your trading career, and many people do, even those that have been trading for years. However, when you are just starting out, there are certain holes that are very easy to fall into, if you have traded then you have probably experienced some of them, so let’s take a little look at what they are.

Being Overconfident

This is quite a straightforward one and something that you can very easily fall into, especially when starting out. Let’s say you have just started, you have placed three different trades and each of them has ended up in profit. This trading thing is easy, right? Well no, it’s not, yes your first three trades won but the markets moved with you, or in some cases you got lucky. Some who are in this situation feel that it is easy and will then put in larger trades, or more trades, thus increasing risk, and inevitably when that loss comes, your confidence will be hit and so will your account balance. It is important that as a new trader, you understand the dangers of being overconfident.

Too Many Emotions

Trading can be incredibly exciting, don’t get us wrong, it is hard to keep all of those emotions in check as things start to move up and down, however, a problem that a lot of newer traders get into is allowing those emotions to take over the decision-making process. Think back to when you started, when something started going the wrong way, how did you feel? There was no doubt an element of fear, disappointment, or even regret at making the trade, what you do not want to do is to allow those emotions to take over, do not start closing or opening trades based on these feelings, you are doing that based on analysis and your strategy, not how you feel. 


Trading is all about probabilities, yes there is sometimes an element of luck when an unannounced news event comes out and the markets move with or against you, however, the majority of things are known and are called probabilities. Someone completely new to trading will look at the markets, it’s a 50/50 as to whether the markets will go up or down right? Wrong. The markets are full of probabilities and new traders often do not understand this, but getting to learn about them can help to stack things in your favour.

Wanting a Little More

Most strategies have set entry and exit points, as well as set risk management for those trades. When you are new and you have a trade going the right way, it is easy to try and stick with it in the hope that it will make you a little bit extra. You should be coming out at the designated position at the take profit levels, but many newer traders have the habit of moving those take profit levels a little higher in the hope to earn some more, but the markets can turn at any moment, moving them can actually cause your trade to miss the TP level and then reverse to less profit or even back down to a  loss. Stick to what was planned. This can also work with making larger trades that go against the risk management, just because you want a little bit extra is a huge no that a lot of new traders can do.

Doubting Yourself

We have all done this at some time in life, and it is incredibly easy to do. You have made a trade, as soon as it has been placed, you suddenly wonder whether it was the right trade, should you have made it? Should we now get out of it? No, you made that trade for a reason, so stick with it. This also is relevant once a trade has finished, if it lost, you can question that maybe you aren’t good enough and that is why it lost, or if it won, you consider it luck, nothing to do with the work you put in before. Be confident in what you are doing, trust that the strategy that you used works and stick with it, accept the outcomes, and move on to the next one.

So those are a few little psychological pitfalls that newer traders can fall into, it is all about having an understanding of what you are doing, why you are doing it, and that the markets are their own beast, not something that can be tamed. Have confidence, trust your strategy but most importantly, stay humble and stick to the plan.

Forex Psychology

Dealing With the Stress of Forex Trading

Stress is a powerful emotion and it is not one that will shy away from forex traders or any other traders, in fact, it can take a hold of us no matter what it is that we are doing, even something as simple as making a sandwich. You sometimes see those people who never experience it, and generally, we hate it, but what we see is not always the truth, just because we do not see them reacting to stress in the way that we expect, it does not mean that they are not experiencing it.

People can develop ways to deal with stress, so while it may not seem like they are experiencing any, they actually are, they just are able to deal with it. It is important that you are able to deal with your stress levels, if they manage to get too high it can potentially cause you to make rash and irrational decisions which could then be detrimental to your overall trading strategy and profitability. Everyone deals with stress in different ways so it is important that you work out the way that you will be able to deal with it. 

We are going to be looking at a number of different ways that people can help deal with their stress, some may work for you, some may not, but they are certainly effective for some.

The first thing that you need to be able to do is to acknowledge and accept that you are experiencing some stress, the earlier that you are able to do this the better. Admit to yourself that you are feeling stressed, anxious, or that things are just simply too much for you. Once you are able to accept that you are experiencing stress, you will then be able to begin to work on getting over it or controlling it. Think about the last time you felt stress, what did you experience? Some people have a faster heart rate, some people get headaches and some people begin to sweat. You need to understand your signs and how they manifest themselves if you are going to be able to recognise stress and then acknowledge it.

You then need to accept that you are experiencing these emotions, just because people have seen the signs, does not mean that they want to accept that they are going through it. Some people like to suggest that they do not experience stress, they never have before but that is simply not true, some people like to believe that they do not, they like to allow others to believe what they do not, but they most certainly do. Accept that you are going through it and you will be able to offer a better deal with it instead of keeping things inside and letting them grow.

If you feel that you are going through some stress or can feel in building, then it is important that you stop trading when going through these emotions can lead to some very rash decisions that could potentially put your account in danger. Stress can make you throw whatever risk management that you have out of the window and to put on larger, more risky trades, not something that anyone should be doing.

Take a step back, there is no harm in stepping away from the computer or your trading station when you are feeling these emotions. In fact, it would be recommended. Take a break, be it 5 minutes, 10 minutes, an hour, or until the next day. Go outside, go for a walk, all of these things will help you to clear your mind and to get a fresher look at the markets. Taking your mind away from the thing that is causing you the stress is the best way of reducing it, of course, then simply coming back can simply bring on the stress again, so there need to be ways for you to be able to control them and to know exactly what it is that is causing the stress.

The next and one of the most important things that you need to be able to do is to identify what it is that is causing you to stress, the sources of your stress. The sooner that you are able to work out what it is that is causing you the stress, the sooner that you will be able to avoid it or to eliminate it completely.

The problem is that it can be quite hard to actually work out what it is that is causing you the stress, due to this it is important that you take a journal. You were probably told to create a trading journal, what you need to do is add a little section to it where you can indicate your current feelings, every time that you are feeling a little stressed, write it down, you will then be able to use this to see any patterns. Maybe you are feeling it each time you have a loss, each time the markets go against you, or if a certain someone comes over to visit and distracts you from your trading.

If you are able to notice and pinpoint a trend or a reason as to why you are getting stressed, you can then look at ways to reduce or avoid it. Some things like losses cannot be avoided, but you are able to train yourself to have a better understanding of your overall strategy, losses should be a part of that and how to deal with them. If it’s a person interrupting your trading, then, ask them to not come during your trading times. There are little things that you will be able to do, and it is important that you understand what they are.

You won’t be able to remove every source of stress, that would be impossible, and some levels of stress can actually be good for you and can help you to concentrate more, but the most important thing is that you get an understanding of what the sources of your stress are, this way you can manage yourself to not allow those stresses to take over your trading. Try to avoid trading stress and you will be able to be a calmer and ultimately more successful trader.

Forex Psychology

Positive Thinking = Positive Trading: The Power of Positivity

Staying positive can be difficult, especially when things are no longer going your way, and when trading in the markets, there are countless things going on that can cause you to have a slightly more negative attitude. With currency trading, the markets like to go on trends and when these trends go against you it could lead to potentially weeks of things not going your way.

Positive thinking and personal development are incredibly important things, not just when trading but in anything in life, your job, your family life, it all requires personal development and certain levels of positive thinking in order to be successful, trading the markets is no different in this regard.

So we want to be in a positive mindset when we go into trading, but how do we get into this mindset? Well, there are a  few things that we can do, and they are important to get right. Going into trading with a positive mind will give us extra motivation and confidence within the markets and our own strategies and trading plans.

Start your day on a positive note:

This may seem obvious, but being able to start your day on a positive note will give you a good starting position, you will begin the day motivated, confident, and ready to trade and learn. Prompt yourself and remind yourself as soon as you get up that the day will be a good one. You may look strange talking to yourself, but this sort of self-motivation can work wonders on our daily outlook and productivity.

Use constant self-assurance:

Throughout the day, things will happen that will put a dent into our positivity, especially when trading and a trade does not go our way. You need to be able to keep self-motivating yourself by telling yourself that things will turn around and that your next trades are going to go well. It is good to remember that losses are a part of trading, your strategy and trading plan has taken them into account so they should give you any negative thoughts, instead, chalk them off as part of the ride and try to keep that positivity up.

Positive environments:

One thing you could change is the environment that you trade in, what brings you more happiness, a plane grey room with a desk and a window, or a colourful room with plants, colours, pictures, and other things? I am assuming the second, this is the sort of environment that you want to trade in, a room that makes you happy and makes you feel positive. Trading in a depressing room will not only prevent certain levels of inspiration, but it will potentially make you feel bored or other negative thoughts. Of course, don’t just stuff the room full of all your favourite things, this could cause unwanted distractions, just make sure it is a nice room to be in,

Spread positivity to others:

When you are feeling positive, it is important to pass those feelings onto others, not only to help them but to also help yourself. Talking to others can bring up their positivity levels, doing so will help to cement the positive vibes into your own mind. Once others are positive, there is a good chance that they will be able to lift you back up should your positivity begin to fall. It can become a positivity circle and can be beneficial for everyone involved.

The currency markets can be depressing and stressful places, but they can offer a lot of fantastic things too. In order to get the most out of them, you will need to go in with a positive mind and a positive attitude, doing so will make it far easier to both learn and develop our own trading techniques as well as motivating you to actually trade.

Forex Psychology

Is It Important that You Actually Enjoy Forex Trading?

It’s a very simple question as to whether you enjoy trading or not, however even some of the simplest questions can be quite hard to answer if you look into things in a little more detail, with a little more depth, you can find out exactly how you feel about something, and for many, it may not actually be how it seems on the outside. There are a lot of aspects to Forex trading. Some people will enjoy some of them, like the wining, and others will find it absolutely tedious, such as all the numbers. It really comes down to your personality and your likes and dislikes as to whether you will enjoy your trading journey.

Trading is tough and trading takes a lot of deduction and discipline, if you believe that you are a free spirit, someone who cannot be held down, then trading can seem from the outside like it would be perfect for you, no boss, no set working time, however, in reality, the markets will ultimately control you and will be in charge of you. You will be forced to work certain hours, you will be punished when you do things wrong and you will unfortunately have all of that without the stability of a guaranteed monthly wage.

Trading can be incredibly exciting and incredibly rewarding, especially when you are on a roll of positive trades. Each and every win will give you a little bit of excitement and a little confirmation that you are doing something correctly. What about when things go wrong? When you make a loss, it is of course not an enjoyable situation to be in. What you need to think about is how you deal with that loss, how are you coping with losses? Do they stress you out, do they cause frustration? If they do, then you may not find trading to be very enjoyable in the long run.

There will be a lot of losses along your trading journey, if you are not able to deal with them without stress or to be able to move those loose out of your mind in order to move on then there is a good chance that you may begin to find trading stressful and not all that enjoyable once the losses begin to build up, and they most certainly will begin to build up. Being able to deal with those losses and being able to clear your mind will really help you remain positive. Just remember that those losses are coming, there will always be losses, so dealing with them is paramount. Just remember to consider your overall enjoyment when deciding to trade, if you get caught up on losses, then this may not be the hobby or career for you.

Numbers, lots of numbers, do you like numbers? If not then trading won’t be an enjoyable thing for you. The Majority of trading, the analysing, the planing, and the actual trading is all based around numbers, be it the value of a currency or the current Fibonacci levels. Numbers will be involved in everything that you do. For those that like maths and statistics, trading will be an amazing experience, it allows you to analyse all sorts of things and will keep you busy pretty much every day. However, if you are not a fan of numbers and performing mathematical sums, then trading could be a little boring and a little tedious as you begin to realise that it is pretty much all based around those pesky numbers.

How are you when being by yourself for an extended period of time? If you struggle to keep yourself company, then it can be a difficult journey. The majority of trading is not a highly social event, in fact, the majority of the time you will be sat by yourself in front of the computer, reading, trading, and keeping yourself entertained. Of course, there are times where you will take to others there are forums and other message boards available to talk to other like-minded people, but this is still all digital and many other traders do not actually come into physical contact with any other active traders.

Are you able to keep yourself occupied, do you feel lonely when alone, and do you cope well with isolation? These are pretty big questions that you need to ask yourself, there are those that are able to entertain themselves or in fact enjoy the aspect of isolation. If that is you then you could really start to enjoy trading, you are in total control, but that also means control of your moods and your interactions with others. If it starts to get too much, then you may need to look at trading in smaller chunks and using the time between to get outside and interact with others. However, if you like the isolation, like a lot of people do, then not needing to deal with other people and the issues that come with people management, then this could certainly be the career for you, it will be just you, your computer, and the markets.

Do you need direction? One thing that a lot of people hate about their job is receiving instructions on what they need to do, but it isn’t until you have left that job that you come to realise that you actually needed that direction and those instructions. Many people find it hard to prioritise and to plan their days, and without some there to help you through it can often feel a little lost. Being a trader, full time or part-time, requires a certain amount of self-direction and planning. You need to plan your day, you need to ensure that you are motivated to do it and you need to be able to evaluate your own performance on it. If you are not able to plan your days properly then you may find trading an extremely stressful experience. Those able to work well by themselves will find relief in the fact that they do not have someone above them managing them, of course, the markets will still be in charge.

How are you with self-motivation and self-discipline? If you notice that you are doing something wrong are you able to correct yourself? Being a trader means being able to motivate yourself to do the work and being able to tell yourself when you are doing something badly. In terms of your enjoyment of trading, motivation will go a lot way, if you are not motivated and not able to self motivate yourself then you will struggle to enjoy it. The most common reason for losing motivation is boredom, and that is something that you will potentially experience a lot during a solo trading career, so being able to give yourself that boost is paramount to any form of success.

The same can be said for discipline, if you are not able to discipline yourself to give yourself some honest feedback on your trading abilities and performance, then you will only continue to make mistakes These mistakes will lead to a loss in motivation and will diminish your overall enjoyment of trading. So if you are able to self reflect on your performance, you may well enjoy it, but if you are not, then it could be a difficult and demoralising journey for you.

So those are some of the things that you need to be able to think about. Trading can be very enjoyable for some, but others it can be a real mood and motivation killer. It will ultimately come down to your personality and the way that you are able to deal with boredom, stress, and all the other emotions that come along with trading.

Forex Psychology

Should You Trust Your Instincts While Trading?

Your instincts are powerful things, they can take hold of us when we are doing pretty much anything in life, out in the wild, our fight or flight reactions, playing sports and it most certainly rears its head when we are trading, in fact, everything that we do when trading has an aspect of our instincts in them, or at least in the back of our minds. We have often been taught when trading that we need to go with facts and not our instincts, but is this really the case? We are going to look into your instincts and how they can actually help with your trading.

We are going to go against that trend and state that you should indeed listen to your trading instincts, there are a few catches, we, of course, are not referring to simply ignoring all the research and then just trade whatever it is that you think is right.

We are sure that there have been times when you are trading where you have done all the analysis, it all looks right and good for a trade, but there is something at the bottom of your stomach or the back of your head that is telling you not to take that trade, but why? Everything seems to be pointing to it being a good trade, so why shouldn’t we take that trade?

More often than not, you would have read something or heard something somewhere which you did not register at the time, so are not entirely sure what it was, but you did, and now your mind and body are telling you not to take this trade due to that. Seems silly not to take the trade still, but how many times in life have you just had a bad feeling about something and so did not do something, only to then later find out that it went wrong and should you have done it, you would have been in trouble.

So in this regard, it is good to listen to your instincts when you feel that you should not enter a trade, after all, there is no harm in not taking a trade based on it, the worst that can happen is that you miss out on a profitable trade, but you can always get the next one that comes along, so in reality there is very little harm in it.

There are also times when we can look to our instinct when putting on trades too, sometimes you simply feel that something will go up and down, but this does not mean that you should then put on the trade. Instead, it should be an indication that you should then do the analysis and check on that trade, if everything you analyse and look at confirms your feelings then you should by all means put on the trade after all the analysis confirms it.

What you should not do is put on a trade simply because you think it will work without doing the subsequent work to confirm it. This is basically gambling, the same as betting on a sports team because you think they will win. Listen to your instinct but do not act on it solely by itself.

People will always tell you that your instinct has no place in trading, this is simply not true, listen to it, use it as a tool, just make sure that you are not using it to choose your trades without doing the rest of the work that is required.

Forex Psychology

Preparing Yourself Mentally For Full-Time Forex Trading

Becoming a full-time trader is something that a lot of people aim for, it is the main goal for a lot of people, to get rid of that 9-5 job, to get out from under that boss from hell, but a lot of people who eat it, are not fully prepared for what is actually involved in it. Going full time is a huge step and it can put you under a lot of pressure, the pressure that you didn’t have as a part-time trader due to having other sources of income or not needing to rely on it. 

We are going to be looking at some of the things that you need to think about in terms of your mentality if you are planning to become a full-time trader, you may already be doing some of them, or maybe you aren’t doing any of it yet. What we hope is that this can be used to give you a better understanding of what is yet to come for you on your journey and also some of the things that you will need to think about before you decide to ditch the job and go full time.

Are you actually ready?

This takes a few different things into consideration, firstly, do you have enough money to survive? Remember, you will be relying on the income from your trading for everything, what would happen should you not make enough? Do you have enough capital and reserve funds to survive? Think about your bills, the rent, mortgage, food, car insurance, Netflix, and everything else. If you were to not make any money one month, would you still be able to afford all of this? The recommended amount to have saved up is at least 3 months living costs, if you have less than this then it could be looked at as not being ready to pack in the day job, you need to have enough available should things go south and you don’t make any money.

It is also important that you have enough capital to actually trade at the level that you are required to. If you are required to make $3,000 per month, then if you have an account balance of $1,000 it is just not feasible or realistic. You need to ensure that you can SAFELY make enough each month and to be able to survive any drawdown that comes with trading.

You need to be mentally prepared to have to stop doing certain activities that take away your finances, it is fine for months where you have made enough, but on those where the income is a little lower, you need to be prepared to make sacrifices and knowing this beforehand is vital so things do not come to you as a shock, there will be times where you need to sacrifice things, it will happen, so be prepared.

The other thing to think about is your recent results, or at least the past 6 months of results. It is all well and good having the last month be a good one, but one profitable month does not mean that you will be able to be consistent. We need to look at the past 6 months or so to ensure that we are profitable. If you have not been, if your average for those 6 months is below what you need, then you are not yet ready to go full time and you are not quite ready to support yourself fully just from trading.

Setting Realistic Goals

You need to be able to set yourself some realistic goals, as a full-time trader you are relying on this money and the income that trading creates. When you are trading as a hobby, it is ok to say that you want to make a million dollars, but that is not realistic when trading full time. It’s great to imagine buying that dream car, but let’s not forget that you also have your bills to pay, so your first goal simply needs to be to make enough to sustain your own lifestyle, not a new one, the lifestyle that you are currently living right now. 

Your goals also need to move back a little bit, you won’t be going for such fast results, you now need to be more careful with your trading, so that new car may need to take 3 years instead of 1 to achieve, this helps you to keep things a little safer and will keep you trading for a long period of time. Set your goals realistically based on what you have been trading before, not what you want to be trading in the future.

Are you willing to change your lifestyle?

Are you one of the people who loves going out in the afternoons, or have a busy family life, well unfortunately things will need to change. While it sounds great having no boss and being able to work when you want, that does not mean that you won’t be working a lot, and we mean a lot. Some full-time traders work far more hours than they would with a normal full-time job. You need to be able to set yourself hours. Unfortunately, these may not always be to your liking and may need to be set based on the strategy that you are using.

This also means getting rid of potential distractions, if you love your Playstation, then are you able to trade for hours at a time without being distracted and wanting to play it? If not then it will be hard for you to stay dedicated and more strict scenarios may need to be put in place like getting rid of it completely. It is not easy to stay concentrated on trading, both subtle and big changes may need to be made to your lifestyle.

Are you able to treat trading like a business?

Often when people start working from home they start doing it in their pajamas, they start to get slack with their wake up times and so start working later, and later, this won’t work with Forex trading. Trading is such a disciplined task and job to do that you need to be able to treat it like a business. You need to be getting up in time and starting work at the same time, you need to show it the respect and education that it needs and you need to be able to act as if you are at a job.

So those are some of the things that you need to be able to consider should you decide to go full time, it is an easy choice to make, most would jump at the opportunity, but it is important that you understand the consequences and requirements of trading full time. If you are prepared, and your strategy is ready, then good luck, it is a difficult journey ahead of you but it is certainly a rewarding one too.

Forex Psychology

Psychological Differences Between Demo and Live Trading

When you start out trading, often the first bit of advice that is given to you is to use a demo account, keep using a demo account until you perfect your strategy. While this isn’t necessarily bad advice, it is, however, advice that can lead you into a sense of false confidence. Yes, we agree that using a demo account is great, to begin with, however, there are a few things that you should keep in mind for when you move over to a live account.

Reduction in Emotion

When you are trading on a demo account, there is nothing to lose, which means all of the stress that comes with a loss is not there, make a loss and you shrug it off, blow the account, just open up a new one and all that money is back. This isn’t how it will work on a real account, each and every loss is you losing something of yours, this can be devastating to some, we have seen people lost thousands, others have lost $10 yet it can have the same psychological effect on someone and can be hard to take. 

These negatives can cause a snowball effect and can cause some people to chase losses which can lead to more losses and even account closure and debts. It can also work for winning, your first winning trade on a demo account feels ok, but nothing special when you compare it to your first winning trade on a live account, it is a fantastic feeling, just don’t let it get into your head, stick to the strategy and you will have many more wins, don’t start trading just because you are on a high of the previous win.

The Need for Greed

If you were to ask someone if they are a greedy person, they will 90% of the time say no, watching someone trade is a good way to see the truth. We touched briefly on it in the previous post, but when you make a winning trade, that is actual money coming into your account, real money that you can withdraw and spend, it feels great, but I want more. Maybe I could get more by putting in trade here or there, obviously, these are not in line with my strategy but they could make me more money. My trade is going the wrong way, let me just move my stop loss further down so it doesn’t close because it will definitely turn. My trade is going the right way, let me move my take profit level higher so I can make a bit extra.

These are all things that we have done on a live account, but never ever think of doing it on a demo account, simply because we can make some money. These are not good habits to have, you set these initial trades or limits for a reason, stick with them, do not change them just because you think you could squeeze a little extra out of the markets, the markets will not be afraid to take it all back from you.

Risk Elimination

This works in a similar way to the emotions, there is no risk when trading on a demo account if you lose, you aren’t losing anything, but in the same way, if you win, you aren’t actually winning anything (apart from the knowledge of course). On a live account, seeing your balance going up or down can have a huge psychological impact, when it goes up, you are full of confidence and on a high, but when it goes down, it can really impact on your confidence and desire to continue learning.

So how do you avoid these sorts of things? It isn’t easy, any professional trader will tell you that, the hardest part of trading is taking out the emotion and sticking to your strategy, especially when things are starting to go wrong. Ensure that you are sticking to your plan, you created a strategy on the demo account, stick to the exact same on a live account, think of it as a process and try not to look at the profits, you could even hide them on your trading platform. 

Ensure that you are using a trading journal, both on the demo account and on the live account, this way you will continue to use what is working and will be able to see if you are changing anything fro the demo account, allowing you to stop and move back towards your strategy.

It is a big change going from demo to live trading, but ensuring that you are fully prepared and taking your time not to rush into things are the first steps in becoming a successful live trader.

Forex Psychology

Why Dedication is So Important For Forex Traders

If you have been looking over the internet, at the various social meiosis sites, forums, and trading communities, you would have seen some of the amazing success stories out there. Having seen them, at one point or another, you probably thought to yourself that this is something that you are able to do too. There is nothing stopping you from achieving this, apart from yourself.

One of the traits needed to become good at anything in life, including trading, sports, or even going up the career ladder, that trait is dedication. Dedication is also vital for becoming a successful trader, most people recognise this when they are starting out. However, a lot of people don’t necessarily understand exactly how much dedication is needed or how much work will need to be put in in order to actually achieve these goals.

Those people who have come into trading expecting or wanting some quick results are often the ones that fall victim to the amount of work that is needed and so then eventually gives up. There are people out there from all walks of life who will, unfortunately, decide to jump into trading with tier life savings, hoping to make it big, especially those that are used to gambling or taking larger risks in life. There is an expectation that they will be able to make it, with little other understanding of the ins and outs or the work that is actually involved in it.

Getting into trading is becoming more and more accessible, due to this the expectation from those getting into it is that it must be quite easy to achieve some targets and goals. All you need to do now is to sign up to a broker, send in your ID, deposit some money and you are ready to trade. No lessons, no knowledge needed (even though there is a lot of education and resources available out on the internet), many use it to get a headstart, however, there are those that do not and the ease of getting into trading just makes it an enticing thing to get into with very little fuss involved.

While there have been a number of different traders who have gotten into it and become successful over a very short period of time, this is certainly not the norm. Those success stories and few and far between, however, they are the ones that get the most publicity, and so this gives people the impression that it is an easy and common thing to occur, something that is far from the truth. Not everyone gets the brown success story like this, in fact, the majority of them will not, the majority will lose out. One of the major things that you can do to help improve your chances are to put in the work to learn and to keep some dedication towards your goals and learning.

If we look at the importance of dedication in some other professions, there are very few writers who manage to write a bestseller on their first attempt. In fact the majority of them, it will take many books and failed attempts before one is even looked at by a publisher. Some people also need to put themselves in the right environment. If we look at K.K. Rowling, the author of the incredibly popular Harry Potter books. When she started her writing career, she was a single mother, near bankruptcy, but she still dedicated herself to her writing, going to school, and writing novels. Through this determination to work and to write, she eventually came up with the Harry Potter books and now she has more money than she knows what to do with. If she didn’t have the determination and the dedication to writing when she had been given her first few rejection letters, she most likely would have given up and so she would not be in the situation that she is now.

What about Michae Jordan? You may well know him as one of the best basketball players to have played the game, but did you know what back in high school, he was actually dropped from the team? For many this would have been more than enough reason to give up, but did he? No, he stuck with it, worked hard, and then became one of the best.

Those are just some of the real-world examples of how powerful dedication can be, if you really want to achieve something and you are willing to put the work in to achieve it then there is no reason why you cannot achieve that goal. This works exactly the same for trading, if you really want to do it, you understand that it is a lot of work but you are still willing to put in the work then there is no reason why you won’t be able to do it and to do it well.

Forex is a long process, a really long process, many of the successful traders that you see today (not the ones that got lucky with a single big trade) have taken a long time to get to where they are today. Years at a minimum, in fact, a lot of them would have still been making a loss after their first year. That time is used to get used to how things work, to find yourself and what sort of style of trading best suits you. This is not the time to be thinking of that new car or that you will be quitting your job to do this full time. That will come, but a lot later down the road.

What we need to take from this is the fact that once we have started with something we need to stick with it. This counts for trading as a whole, but it also counts for the smaller parts within trading. If you are trying out a new strategy, you cannot simply try it for a week and then decide that it does not work. Strategies take a long time to create and also a long time to test, at least six months should be put into a strategy before it can be declared as not working (unless it completely fails with a lot of losses). If you have started something, put the work into it, stick with it, and show some dedication to making it work.

Dedication is something that comes naturally to some, they have the ability to start something and then stick with it with little effort. Others may find it harder, those with short attention spans or those that easily get bored can find things harder to stick to in the long run, however if you manage to, you will see the huge differences to your trading ability and your results. So if you are just coming into trading, be prepared for the long haul, not some quick and simple profits, which will most likely never come without having the dedication to push on.

Forex Psychology

How Greed Can Both Help and Hinder Your Trading

Forex trading is often referred to as an emotional rollercoaster ride due to the ups and downs of various emotions that humans can experience while trading. When we’re winning, we feel excited or on top of the world and may never want to stop. When we’re down, we might feel anxious, afraid, or depressed. Although our thoughts on these emotions might be black in white, for example, excitement is usually regarded as a good emotion, these feelings can all have negative influences on our trades. This is because someone that is feeling excited might keep going when they should stop, thus resulting in a loss. Today, we will talk about the way greed can influence our trades. 

Greed could be considered a mixed bag when it comes to positive and negative outcomes. The truth is that greed mostly has a negative influence on our trading decisions, although it is associated with ‘riding the wave’ in trading. This is a common tactic that can be highly rewarding, as long as one knows when to get out. It only works in highly volatile trending markets and can be done using various indicators or with some background knowledge. Traders generally label this strategy as greedy, and this can be one of the only benefits of being greedy in the forex market. However, many greedy traders do not know when it’s the right time to get out of the trade because they are always looking to make the most profit possible.

Most professionals will tell you that there’s nothing good about getting greedy when you’re trading. Many of these seasoned traders have experienced the devastating effects of the emotion firsthand, so they want to pass along this lesson to save others from its devastating effects. Here are some of the negative ways that greed can interfere with your trading:

  • Greedy traders risk too much because they are often seeking a big return. This can backfire and result in a large loss instead. These traders might ignore their take profit levels and fail to exit trades when they previously planned to.
  • A greedy trader might miss out on one opportunity and want to make more the next time around, only to end up with a loss. 
  • Greedy traders never feel as though they have accomplished enough. Rather than congratulating themselves for a job well done, they feel the need to keep going.
  • A greedy trader often focuses on making profits in general and might fail to think far enough ahead.
  • Some greedy traders set limits but deviate from those limits once greed takes over.
  • A greedy trader might trade too much out of a constant fear of what they’re missing. This is also known as ‘overtrading’. A good trader knows when to step back and take a break. Sometimes, the best move is doing nothing. 

As you can see, greed can really interfere with our trades and cause one to keep going past their take profit level, only to lose in the end. A trader might get lucky a few times doing this, but this tactic is too close to gambling and is bound to cause more losses than gains in the end. Trading too much, or overtrading, is not a good move if you want to be successful. Many greedy traders might not realize that they are making these mistakes. In fact, they probably feel that they are making logical decisions. This is why it’s important to recognize this emotion and how it can hinder you before you begin.

If you’re already trading and feel that greed is affecting you, take a step back and look at the big picture so that you can focus on solving the problem. Sure, greed is associated with riding the wave, which can be highly profitable for some traders, but this emotion causes more harm than good. Always try to be vigilant about the ways that greed might be affecting your trades and invest some time into learning about trading psychology if you haven’t yet. 

Forex Psychology

How to Avoid Analysis Paralysis

Analysis paralysis is a common anxiety experienced by many forex traders. Traders need to act quickly, but those suffering from this condition tend to over-analyze data, which can result in missed opportunities. In some cases, traders don’t even manage to enter trades because they are too overwhelmed by data and put off the decision for far too long. Having too many indicators on your chart contributes to this problem because they can give off too many signals, which results in a ton of information. Traders then prolong their decision because of the overwhelming amount of information and uncertainty about which signals should be trusted. At this point, the trader either spends too much time analyzing that data, to the point that they enter the trade past a favorable point, or they don’t enter a position at all because it is so late. This problem leads many traders to give up on Forex trading for good. 

If you’re suffering from this problem and looking to overcome it, we can help. First, you’ll need to understand that this problem is likely to be caused by information overload and can affect anyone. We always want to make the best decision and the thought of having more choices seems appealing since more choices should mean better decisions. This isn’t exactly the case, however. Limiting the number of indicators one uses can make it easier to analyze the data and make a quicker decision. Think quantity over quality here. Some professionals even recommend naked trading at first, which means trading without indicators. 

Another thing to remember is that every trading decision shouldn’t (or can’t) be perfect. If you spend too much time looking at data and never make a trade, then you won’t ever make a profit. Try giving yourself a time limit to help yourself make a faster decision. Also, remember that not deciding is a decision itself. If you don’t enter the position, you’ve chosen not to make a trade. This might indicate that you aren’t confident enough in the position you were about to enter. Perhaps this is a sign that you need to do more research or tweak your trading plan so that you will feel more reassured. 

Having a trading plan will help you to see your goals and what you need to be looking for more quickly. It can also help you to filter out which indicators you actually need to de-clutter your charts. Knowing what you’re looking for will help you avoid falling victim to the dreaded analysis paralysis that affects so many traders. A simpler plan can also help with this, as having fewer components to analyze will lead to faster decisions. 

Analysis paralysis has involvement with trading psychology. Emotions affect the way that we make trading decisions, and analysis paralysis certainly branches from anxiety. This is a real problem that stops traders from making decisions in time, or altogether. However, we have hopefully outlined some helpful points that can help traders to overcome this problem. You’ll need to come up with a good, simplified trading plan that you’re confident in first. Then, try to limit the number of indicators you’re using on your charts so that you don’t have as much information to analyze. Remember that trading is risky and decisions can’t be perfect. Educating yourself and following these steps will set you up with the best chance of success and should help avoid the anxiety associated with analysis paralysis.

Forex Psychology

5 Questions Every Forex Trader Should Ask Themselves

Each and every Forex trader needs to not only create a trading plan and select his or her strategies but also need to prepare a money management plan, select a broker, and more. Answer these self-assessment questions to ensure that you’re on the right track.

Question #1: How Much Do I Want to Risk?

The amount of money that you’re willing to risk when trading might vary from one trade to the next, however, many professionals keep their risk percentage to 1-2% of their account balance per trade. Some might suggest basing how much you risk by looking at how much money is actually involved, although this comes down to personal preference. Risking too much can lead to a blown account balance, so be sure to give this one a lot of thought.

Question #2: Did I Choose the Right Broker?

You’ll probably form an opinion of your broker soon after opening an account. Once you need to chat with customer service about possible issues or with questions, test out the broker’s chosen platform, get a look at their fees in real action, and gain insight into any difficult policies you will either feel satisfied with your choice or feeling as if you could do better. If you think you’ve chosen a bad broker, you might want to withdraw your funds and go with another option. Of course, this is something you’ll need to seriously think about.

Question #3: Am I Really Ready to Start Trading?

If you haven’t been trading for long or haven’t started, you should definitely ask yourself whether you’re really ready. If you’ve already opened a trading account, you know whether you’re making or losing money. If you’re only considering opening one, you might not be sure if you’re ready. A few good ways to test this before risking any real money would be taking forex trading quizzes that test your knowledge or gaining hands-on practice through a demo account.  

Question #4: What Are My Goals?

Sure, making money probably seems like the biggest goal for a forex trader, but you need to start with smaller, more defined goals. Remember that it isn’t all about getting rich. For example, a noteworthy goal would be to make more money than you lose, rather than to become rich. To grow as a trader and to bring in slightly more profits each month would be another good example. If you set goals like these, you’ll feel more accomplished as you meet them. 

Question #5: Do I Have a Plan?

A trading plan is one of the first things a trader should develop because they provide a general outline of goals, risk tolerance, and a host of other things that should be taken into consideration. If you started trading without a plan, don’t worry – it’s never too late to come up with one. Still, it’s important to put this plan together as soon as possible and to actually follow it while trading, rather than forgetting about it.

Forex Psychology

Is Forex Trading Addictive?

Trading addiction is a real problem, not unlike alcoholism or gambling addictions. Trading strongly stimulates the reward center in one’s brain and we become addicted to that rush. Trading can cause us to feel a rollercoaster of emotions, including euphoric highs when we win big. Those with a serious problem become addicted to the highs and lows and find themselves unable to stop. Unfortunately, trading addiction causes some of the same issues that drug addicts or alcoholics face because it can wreck relationships, cost one their job, and it usually leads to financial ruin. The good news is that there are ways to manage this so that trading can be practiced correctly and in a healthy manner.

Are you here because you think you might already be addicted to trading? One of the most common scenarios involves a beginner winning big because they get lucky, then they lose everything and try to win it back. The amateur trader then continues to lose more and more as they try to dig themselves out of the hole they have created, rather than knowing when to walk away. Someone that is addicted goes through financial resources that aren’t meant for trading. By that, we mean that anything you invest in trading should be disposable income. If you’re using grocery or bill money to trade with, it isn’t a good sign. 

Borrowing money from others, taking out loans, and selling personal items are other signs that one might be addicted to the rush of trading. People don’t always recognize trading addiction or realize how much it can affect them or their loved ones because it isn’t talked about as often as drug, alcohol, or gambling addictions. Once someone realizes that they have an addiction to trading, they might try to pull themselves out of it on their own. This can lead to disaster.

The best thing to do is to explain your problem to your friends and family so that they can understand how the addiction is affecting you. Those that don’t trade themselves might understand the way you’re feeling and why you’re spending all of your money once you explain this to them face to face. Seeking professional help is your best bet to solving the problem as a professional can help you recognize and overcome the problem.

Professional traders must have self-discipline and they need to be able to sit out when the market isn’t right for trading. Addicted traders need to feel the rush of trading and are more likely to make impulsive decisions, trade at bad times, and wipe out their trading accounts. Once a trader becomes addicted, they need to seek help to keep the problem from affecting their everyday life. This doesn’t mean that you have to give up trading for good, but a professional can help you manage your problem.

For example, you could set aside a certain amount of disposable income for trading from your weekly paycheck and never invest more than that at a time. Or you could mark out certain days of the week where you promise your significant other (or just yourself) that you won’t trade. If you run out of your weekly trading allowance or feel bored on a day where you aren’t supposed to trade, you could read articles and do research to improve your trading education. Or you could trade on a demo account to improve your skills. 

Finding healthy alternatives versus investing money and trading constantly will help you to be more in control of your actions. Taking all of these steps can certainly help one to overcome the problems that result from trading addiction.

Forex Psychology

How to Behave Like a True Trading Legend

Whenever you think of the most successful traders in the world, who comes to mind? Here are a few quick examples of noteworthy traders with a lot of experience:

  • Carl Icahn is the richest trader in the world with a net worth of $14.3 billion. He runs an investment firm and previously advised Donald Trump on regulatory overhaul. 
  • George Soros has a net worth of $8.3 billion and is in charge of a hedge fund worth billions of dollars. He has been nicknamed “the man who broke the bank of England”.  
  • Ray Dalio rules over the world’s biggest hedge fund firm Bridgewater Associates, worth around $140 billion in assets. 

There’s a lot we can learn from these expert traders and others that have put a lot of time and effort into perfecting their trading strategies. If you want to find yourself in their place one day, then you’ll need to understand how they think and what not to do. Below, we will detail four of the best trading behaviors you should copy if you want to think like these billionaire investors. 

  • Be Confident, but Not Overly Confident

In order to be a successful trader, you need to believe in yourself and feel confident in your strategy. It’s important to maintain one’s belief in themselves even when their trading strategy fails and they have some losing trades, rather than second-guessing everything. Unfortunately, too much confidence can lead a trader to feel arrogant or as though they are invincible. Overly confident traders take more risks and don’t always analyze all of the data that they need to. This usually leads one to lose everything that they gained in the end. This is why successful traders need to be confident in their abilities and strategy while remaining humble by remembering that they aren’t invincible. 

Many traders experience anxiety and make distorted decisions after experiencing one or several losses when trading. It is important to understand that you can’t win every single time. Being a good trader is about having more winning trades than losing ones, not having a 100%-win rate. This is why professionals learn from their mistakes without beating themselves up over them. If there was something you could have done differently, remember that next time. Or maybe you made what looked like a good move and the market did something unexpected. Either way, you need to brush yourself on and move on when you make a bad trade. 

  • Know When to Do Nothing

Have you ever anxiously watched a trade and pulled out before hitting your stop loss or take profit level, only to wish you hadn’t soon after? Good traders set their stop loss and take profit levels and then sit back and do nothing. Patience is important here. It isn’t always smart to make a trade, for example, when the market is highly volatile. Good traders sit back and only enter the market when they know they should. They aren’t addicted to trading and understand that some days they will need to sit out. If you want to be like one of the greatest traders out there, you’ll need to practice patience and self-discipline so that you don’t enter the market at bad times or allow anxiety to change your decisions. 

  • Never Stop Learning

Traders should never stop pursuing knowledge about trading. Even if you become a professional, there’s always something new to discover. You need to be able to act logically when the pressure is on and may need to do some psychological work to improve the way you act in stressful trading situations. Or perhaps reading about an unknown strategy or another’s point of view on something could help you to improve your own strategy or be of some use. The best traders don’t assume that they know everything that there is to know about trading.

The Bottom Line

Successful traders have the right amount of confidence without being arrogant. They understand that they could lose but have invested enough effort into their trading strategies that they know most of their trades are going to be winners. In order to be like one of the greatest traders out there, you need to learn a lot about self-discipline and how to behave under pressure so that you don’t allow your emotions to cloud your judgment. Professionals don’t beat themselves up over their mistakes, they dust themselves off and move on. If you plan to be a noteworthy trader in the future, you’re going to need to learn to behave like one. Try following our list and reading about some of the greatest traders out there to master having a professional attitude.