Tag: Forex psychology

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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.

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

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.

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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 […]

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 […]

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.

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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 […]

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 […]

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.

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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 […]

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 […]

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.”

Conclusion

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.

Categories
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 […]

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 […]

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.

Categories
Beginners Forex Education Forex Basics

Here’s How to Take the Stress Out of Forex Trading

Forex trading can be undeniably stressful at times, especially when the market becomes volatile or if you find yourself on the end of a losing streak. Many traders keep going long after this stress sets in, which leads to poor decision making because of clouded judgment. Eventually, some traders even give up because they just […]

Forex trading can be undeniably stressful at times, especially when the market becomes volatile or if you find yourself on the end of a losing streak. Many traders keep going long after this stress sets in, which leads to poor decision making because of clouded judgment. Eventually, some traders even give up because they just […]

Forex trading can be undeniably stressful at times, especially when the market becomes volatile or if you find yourself on the end of a losing streak. Many traders keep going long after this stress sets in, which leads to poor decision making because of clouded judgment. Eventually, some traders even give up because they just can’t perform well enough under all of this pressure. If you’ve also been feeling tense lately, chances are that it’s affecting your profits more than you realize. The good news is that there are some simple steps you can take to make forex trading less stressful so that you can maximize your profit potential. 

Simplify Your Strategy

Are you currently using a complicated trading strategy or one that confuses you? When it comes to your trading system, simple is actually better. It may seem as though more detailed plans work better because there are more components, but these systems are just really good at stressing traders out and causing confusion. If you use indicators, you may want to cut down on those as well. Having too much information to look at is overwhelming and leads us to overlook the most important things, so you can take it easier on your brain by switching to a simpler trading plan and decluttering your charts by removing less useful indicators. 

Take a Break

Have you ever made a bad decision during a moment when you were feeling completely overwhelmed? Forex traders do this every day – they lose out on a trade and frantically try to regain the money by risking more, they enter a trade they shouldn’t because they can’t think straight, they start pulling out of trades at the wrong time because their brain feels foggy – you get the picture. Instead of forcing yourself to keep going when you’re overwhelmed, simply take a break and step away from your computer or phone screen until you calm down. You might worry that you’re missing out on trading opportunities, but you’ll really be avoiding the urge to make emotional trading mistakes. Then you can come back with a clear head without feeling like you’ve been pushed to your limits.

Try a Relaxing Activity Before Trading

If you’re already tense when you first log into your trading account for the day, the anxiety of trading will likely add to your tension, even if you’re making money. The best thing you can do is to start fresh each day in a great mood, so we suggest finding something that helps you relax beforehand. This could be as simple as drinking a morning cup of coffee or listening to your favorite song. Exercise is another popular option that makes people feel good, so consider yoga, meditation, going for a jog, or some other form of exercise to get those endorphins flowing. 

Trade in a Quiet Place

It isn’t a great idea to trade with any type of distractions. Just think, children running around, dogs barking, loud background noise like a television or someone talking on the phone, a vacuum, or any other type of noise is annoying enough on its own when you’re trying to concentrate. Once you add the high-pressure act of trading to the mix, you’re bound to be left feeling stressed out. In this case, you’ll need to find a quieter environment so that you can fully focus and make the best decisions without having your brain jump from one thing to another. Also, don’t discount small distractions if your house is fairly quiet, as even social media notifications can be a pesky distraction for forex traders that are trying to concentrate. 

Don’t Let Losses Rule You

Nobody is ever going to be happy about losing money, but forex traders need to know that this is going to inevitably happen from time to time. The important thing is that you’re making more than you lose and this can be accomplished even if you have more losing trades than winning ones. Of course, losing one or more trades in a row is still one of the best ways to become stressed while you’re trading. If you want to avoid this, you can start by accepting the fact that everyone loses sometimes, even the best traders out there, and promising that you won’t be too hard on yourself when this happens. Then, consider taking certain measures to reduce the frustration you feel over those losses. For example, you could risk less on each trade so those losses don’t hit so hard. 

Be Confident

If you’re constantly doubting yourself as a forex trader by questioning your abilities in general along with every move you make, you’re always going to be stressed out. In order to be more self-confident, you’ll need to ensure that you can trust your trading strategy and spend time learning more about forex trading. If you aren’t confident with your plan, try testing it on a demo account to reassure yourself that it works or for a sign that you should change things up. If you want to test your own knowledge, try taking online quizzes, and research anything you get wrong. In the end, you’ll be more confident once you enter trades, so you won’t be as likely to pull out too early because you’re doubting yourself.

Categories
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?

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?

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.

Conclusion

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.

Categories
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 […]

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 […]

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.

Categories
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 […]

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 […]

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.

Conclusion

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!

Categories
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 […]

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 […]

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.

Categories
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, […]

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, […]

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.
Categories
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 […]

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 […]

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…

WINNING MIND

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.”

DISCIPLINE

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.

KNOW YOURSELF

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.

Categories
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 […]

Your comfort zone

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 […]

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.

Categories
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 […]

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 […]

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.

Categories
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 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 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.

Categories
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 […]

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 […]

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 Project-Syndicate.org or ZeroHedge.com 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.

Conclusion

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.

Categories
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 […]

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 […]

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.

Categories
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 […]

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 […]

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.

Categories
Forex Psychology

The Inherent Dangers of Revenge Trading

Revenge trading – it’s one of the many things that can stop a successful trader dead in their tracks on the path to success as if traders weren’t already dealing with enough negativity. Before you can learn to stop revenge trading and how to avoid it, you’ll need to understand what it is. Allow us […]

Revenge trading – it’s one of the many things that can stop a successful trader dead in their tracks on the path to success as if traders weren’t already dealing with enough negativity. Before you can learn to stop revenge trading and how to avoid it, you’ll need to understand what it is. Allow us […]

Revenge trading – it’s one of the many things that can stop a successful trader dead in their tracks on the path to success as if traders weren’t already dealing with enough negativity. Before you can learn to stop revenge trading and how to avoid it, you’ll need to understand what it is. Allow us to start by defining the term “revenge trading”. 

The term revenge trading refers to a common problem where a trader becomes angry after losing money and attempts to take revenge trades in an attempt to recover their losses. With emotions like anger and frustration clouding the trader’s mind, they are likely to make decisions that are closer to gambling without following their trading plan. There are two reasons why this is a big problem:

  • First, revenge trading causes the trader to throw their discipline out the window. In the heat of the moment, trading plans and strategies are often ignored, and the trader might base their trades off nothing much at all. When your head is stuck on those losses and how badly you want to make the money back, you aren’t likely to follow your strategy or to think about risk management. 
  • A trader that isn’t making good decisions and that makes large trades without accounting for their overall risk is likely to lose more money, thus repeating the cycle that started the revenge trading in the first place. 

As you can see, revenge trading can cause issues with one’s logical thinking in the same way that many other emotions like anxiety, fear, etc. can wreak havoc on trading decisions. Below, we will provide two common scenarios that exemplify revenge trading:

  • In the first scenario, trader A has invested a chunk of money into a trade and wound up losing $97. This leaves trader A feeling frustrated about the fact that he was wrong and anxious to make his money back. In the same ways that someone who is having a bad day might get road rage or become snappy with a loved one, trader A begins to take out his aggression on his trades. He impulsively makes larger trades out of desperation to win that money back, but he winds up losing even more. In the end, trader A loses $200 instead of the initial $97 loss.
  • In the next scenario, trader B loses $40 a few hours after her stop-loss is hit. Although she would usually only risk $50, she decides to double her risk to $100 out of frustration and in an attempt to win that money back. As soon as she makes her $50 back, she cuts her winning trade out because of the fear that she will lose money again, even though she could have made more money. 

Although both of the above scenarios differ, each trader has fallen guilty to revenge trading. Trader A lost more money than he would have because he was chasing his losses, while trader B doubled her risk and closed out her winning trade once she made what she had lost. Bost traders lost money they could have made, as trader A could have stuck with the initial loss and trader B could have made more money on the winning trade. 

Now that we’ve covered what revenge trading is and provided a few examples, we will offer a few steps that can help traders overcome this problem:

  • Step 1:  After a frustrating loss, you should step away and clear your head. You could try doing something that makes you feel relaxed, like listening to music, exercising, or even spending a few minutes outside. Once you’re calm, you’ll be ready to think more rationally. 
  • Step 2: Next, it is helpful to determine the reasons why you lost the trade. Was this an error on your part, or did you make a trading move that seemed reasonable? Instead of betting yourself up over the loss, you simply want to figure out what went wrong so that you can avoid making the same mistake. Also, try to identify any triggers that you might have that signal you’re about to start revenge trading. A fast heartbeat or biting fingernails are a couple of examples. 
  • Step 3: Always follow your trading plan, no matter what. If you have a plan and strategy, you shouldn’t deviate from it because you’ve lost money. If you usually only risk a certain percentage on a trade, don’t risk more just because you’ve lost money, as this is likely to cause more loss. 

If you follow the above steps by clearing your head, determining what went wrong, and sticking to your usual self-given trading guidelines, you should be able to stop revenge trading without much effort.

Categories
Forex Psychology

Chicken Run – Fear of Missing Out On a Trade

Every forex trader will at some point have to face a particular set of fears that will sometimes mean they fail to pull the trigger on a trade. A lot of people talk about missing a trade as some significant moment in their trading activity. They look at the price movements of a currency pair […]

Every forex trader will at some point have to face a particular set of fears that will sometimes mean they fail to pull the trigger on a trade. A lot of people talk about missing a trade as some significant moment in their trading activity. They look at the price movements of a currency pair […]

Every forex trader will at some point have to face a particular set of fears that will sometimes mean they fail to pull the trigger on a trade. A lot of people talk about missing a trade as some significant moment in their trading activity. They look at the price movements of a currency pair and think it might go a certain way, they might even have an idea of the price it might reach, and they watch it and watch it and lo and behold it goes the way they thought but they didn’t enter a trade. They look at situations like that and hypothesize that they could have entered a trade at such and such a time and then if they had closed it at just the right time, they would have made x amount of profit. But the thing you have to realize is that while we all might fantasize about phantom trades like that from time to time, they are a non-event.

They are truly unimportant in the grand scheme of things because, in reality, nothing happened. You could spend your whole time dreaming up phantom trades like that. You could watch stocks and see potential trades you could have made, you could watch exotic currency pairs you’ve never traded before and see “opportunities” where you could potentially have made thousands, tens of thousands or hundreds of thousands of dollars on a single trade. It didn’t happen. It’s nothing for you to think about, much less worry about. You will miss trades like that literally while you’re sleeping. We all do. Let them go.

Mind Games

One particular reason you should let them go – apart from that way of thinking being completely useless to you – is that there are many more important psychological phenomena for you to worry about. When you ask them about forex trading, most people – and even plenty of traders – would probably tell you it’s all about understanding charts, learning tools and indicators from books, and understanding the theory. Indeed, it is all of those things. But it isn’t one of those processes where you can put in A and get out B every time.

We are, whether we like it or not, squishy ape-like animals that have evolved to be good at a lot of activities but being cold, unemotional machines is, unfortunately, not one of those things. As with anything else in life, our psychology is a big factor in how we perform. As a result, understanding your own psychological or emotional responses to different situations is a key step in being able to control them or curtail them when you need to and to stop them from inhibiting your efficacy. In fact, it often tends to be the traders who think of themselves as unemotional and unaffected by psychological ups and downs who turn out to be the ones who struggle most in certain situations.

Trading has a myriad of ways of drawing you into an emotional response – sometimes when you least expect it – so understanding those potential pitfalls and being aware of your emotional state enables you not only to learn about yourself but also to avoid making the same mistakes again and again. For example, you might be able to explain to a small child that it shouldn’t do something stupid, like touch the flame of a candle, but its only when it realizes it for itself that it will internalize that lesson.

Pulling the Trigger

The moment in a trader’s day that is most fraught with psychological turmoil is when they have to pull the trigger on a trade they’ve planned and for which they have a trade signal from the system they have built up. Not, as in the earlier example, when they think about a potential trade but make no moves towards it. For want of a better way of putting it, the really scary moment is when you have run the numbers, analyzed the price activity, found an entry point, established your target, zeroed in on your timeframe, and set up your stop/losses. Once you’ve run through your whole checklist and even gone as far as opening an order on your trading system, you’ve reached the moment of truth. Do you click the button?

Now, anyone who’s been trading for any significant amount of time will have, on occasion, been wracked by doubt and backed out at this point. Not to put too fine a point on it, they will have chickened out and missed their shot. The sheer tragedy of doing that can unfold very quickly if the price moves the way you expected it to and you watch what could have been a successful trade slip away. Quite apart from really bumming you out, a missed shot like that can have several other knock-on effects. It can slide itself into your subconscious mind and affect the way you think about future trades. Without knowing it, you might still be having lingering thoughts about that moment not just when you make your next trade, or your next couple of trades – it can persist well into your next month of trading, or even longer. The fear of missing an opportunity like that is no small thing and it really can cause issues for your future trading, which is why it is important to have some self-awareness about it and to try to understand what happened.

Being Your Own Shrink

So what are some of the psychological causes of chickening out? A side note here, if chickening out is a bit of a strong phrase and makes it a little harder for you to think clearly about the issue at hand, try thinking about it as failing to pull the trigger instead. One of the big causes, for most traders, is a fear of failure. You look at the trade you’re about to make and you just feel unsure about it. Of course, all your indicators might be screaming at you to trade right now but sometimes – and we all feel like this from time to time so it’s nothing to get too concerned about – sometimes it just doesn’t feel right for whatever reason. There are ways to overcome it and they are pretty fundamental to how you understand forex trading, so don’t worry, we’ll get to them.

In the meantime, another possible reason people don’t enter a trade, when they otherwise think they should, is over-analysis. This is a bit counter-intuitive since analyzing the technical parameters that lead to a trade is pretty much the bread and butter of most traders. That said, there is such a thing as overthinking it. Some of us love nothing more than to get deep into understanding what causes a given currency pair to move the way it does and, for the most part, that makes us stronger traders. But there’s a flip side to doing too much research because the deeper you get and the more information you try to include, the greater the likelihood that some of that information is going to start contradicting itself. Sometimes you’ll have filled your head with so much reading about news events and looked at so many indicators that some of that begins to cause you to doubt yourself. And not only will you begin to doubt yourself, but you will also – just through the sheer act of spending so much time thinking and analyzing one trade – become too invested in it emotionally.

Yet another form of this is becoming unsure about your analysis in the first place. On one hand, this can lead you to try to overanalyze but also it can simply introduce doubt and put pressure on yourself. Of course, this is one of the most natural responses of any trader. In fact, it’s the traders who tell you they’re 100% sure about the outcome of a trade that you should worry about. Put simply, until you get that crystal ball working, you will never know the outcome of any trade. That inability to see the future reduces every trade to a binary outcome. It will either go your way or it won’t. Little wonder then that this is a cause of stress. But this over-focus on the individual trade is what’s holding you back and therein lies the crux of the problem.

Fighting Back

The single most important thing to understand when trying to overcome all of these hurdles is how you approach individual trades and forex trading as a craft.
If you are focusing on and sweating over each individual trade, you’re doing it wrong. The only way to trade forex and be successful at it, rather than burn out quickly or fade over time, is to establish a system and a process. When you understand trades as part of a process, rather than as individual events on who’s success everything depends, you will free yourself of many of these fears. Once you begin to see trading as something that takes place over the long term, you will become a better trader. And once you have a system in place that means you are going to be right more often than you’re wrong, that you make more money than you lose, you will cease to rely on individual trades for your sense of wellbeing.

Approach each trade afresh. Free it of any losses that came before and understand it as one of the dozens, if not hundreds, of trades you are going to make over the coming year. Judge your success not on the outcome of individual trades but on sets of trades over a longer timeframe. Of course, there are some simple, practical solutions to certain issues too. If you are suffering from a crippling fear of failure over individual trades, you are likely committing too much to each trade. It might be time to reconsider your position size and work on your money management. If you are so unsure of your analysis you regularly find yourself failing to pull the trigger on trades your system is flagging up, you might need to go back to the drawing board.

Indeed, better than that, take your system for a spin on the testing circuit. Put the work in and power up a trading simulator or your demo account and test your system, your process, your checklists, and your whole approach. The great news is that thanks to technology, you can now do this more easily than ever. Assess how your system performs over a significant period – say a hundred trades. This will not only give you a greater sense of security but will also help you to see trades not as one-off events but as part of a process. A larger set of trades will really show you whether your system is working in a way that a single trade never can. Having substantiated confidence in the system you are working with is an enormously important aspect of trading that can help you overcome the smaller, short-term psychological hiccups.

Finally, once you have fully internalized the fact that trading is a process and have gained confidence in your system, you will be ready to overcome even the most dreaded of events for any trader: a losing streak. Psychologically this can be tricky even for the most experienced of traders. But the plain fact of the matter is that the more you trade the greater the statistical chance that you will encounter, through no fault of your own, a run of bad trades. The most dangerous thing you can do is start to mess with a strategy you have taken a long time to establish on the back of three or four losses. It’s a trap many fall into. The good news is that if you have managed to free yourself from over-focusing on single trades and if you have confidence in your system, you are perfectly placed to be able to see every new trade as a fresh start.

Categories
Forex Psychology

Excuses That (Almost) All New Traders Make

If you look around the internet, you will find a lot of excuses out there about why someone may not be trading well or why they have been losing money. The problem with these excuses is that they often show that the user has a lack of understanding about how the markets work, either that […]

If you look around the internet, you will find a lot of excuses out there about why someone may not be trading well or why they have been losing money. The problem with these excuses is that they often show that the user has a lack of understanding about how the markets work, either that […]

If you look around the internet, you will find a lot of excuses out there about why someone may not be trading well or why they have been losing money. The problem with these excuses is that they often show that the user has a lack of understanding about how the markets work, either that or they are in denial and do not want to admit that it may have actually been something that they did that caused the trade to lose.

We are going to be looking at some of the more common excuses that you see posted about the internet on blogs and on various trading forums, we are sure that you would have seen some of them posted before and we are sure that you will also see them posted many times again.

My broker is a scammer!

This excuse could actually have a little merit to it, depending on the broker that is. There are some very shady and dodgy brokers out there, ones that have taken part in some pretty low business operations which have left people without any of their money, or tactics which encourage people to deposit money that they cannot afford to deposit, if this was the case then the excuse would be pretty valid. The problem comes when we look at the more reputable brokers, the ones with great track records that have done pretty much nothing wrong in their entire existence. People still claim that these brokers have scammed them and stolen their money, simply due to the trader losing their money.

This can also be seen with people who claim that all regulated brokers are good and unregulated ones are bad. The regulation covers the protection of their money, it does not always dictate the behavior of the broker, so people claiming that all unregulated brokers will scam you is not the case at all. The majority of traders who use the reputable ones have simply treated badly or gambled, the brokers often do nothing wrong (unless they are an actual bad broker). So be wary when you see people claiming to have been scammed by the broker, it is not always the case.

The markets are against me.

This is something that we see a lot, people take their time to analyse what they think is a good trade, they have put the time and effort in, they then place the trade and it goes the wrong way, or it starts to go well, then suddenly turns and zooms off in another direction. What happened? The markets must be against me, they obviously saw me put on this trade and then decided to go against me so I would lose my money. Reality check, the markets do not even care who you are, they do not notice the little money that you are putting into the markets. There are trillions traded each day on the markets, you $100 trade is nothing to it, not worth anyone’s time or effort to try and trade against it.

Newer traders often don’t realise how many things there are that can affect the markets. You can never prepare for them all, in fact, you cant prepare for even half of them, news events, natural disasters, banks changing consensus, loads of things affect them, just because it went against you, doesn’t mean it was anything personal.

Trading takes too long.

Trading does not take a long time, what takes a long time is the preparation of trading. This is unfortunately the part that you need to do at the start of your career and so it is the part that newer traders see the most. The thing that many do not understand is that once you have gotten through the initial planning and preparation stages, the actual process of putting on the trades does not take time at all. It is common to see it plastered all over the internet and forums that you will not have a life when you start trading or you won’t have time to do it after work, but you can, and many people do. Many people trade part-time after or before work, it is more than possible, people just do not want to put the effort in, or simply look at the start of the process and then assume that the entire trading career will be the same.

Trading is too complicated.

Trading looks complicated, in fact, it is complicated. We will probably give them this one. It takes a lot of effort and time to learn how to trade properly, not something that a lot of people want to actually do. The problem is that from the outside it looks incredibly simple, here isn’t actually that much to it, you guess that something will go up or down and put that trade on. Unfortunately, it is not that simple and once people have started trading they have realised this, do not want to put in all the time and effort to actually learn how to trade properly and simply chalk it up as too complicated and give up.

You can’t make enough to live on.

This is normally something that people say if they have gone into trading with their expectations of what they will be able to do is set way too high. The unfortunate truth is that a lot of people are now getting the idea that trading can make you rich overnight, this view is often formed when people view some of the frequent adverts that are promising less than realistic returns. When you go into it thinking you will have the world, you will be disappointed.

People also go in with the expectation that they will be able to make enough to quit their job within a couple of months, again, this is not something that is realistic. Yes, you may be able to make enough to quit your job, but that will take a long time to happen. It takes a lot of time to learn, not something that some people want to put in, so as soon as they do not make as much as they want, they blame forex and simply state that you cannot make as much as people say that you can.

So those are some of the things that you often see posted around social media or on trading communities. They are often from people who have entered trading without a proper understanding of what is involved or even what trading actually is. If you have that knowledge then you most likely won’t be making the excuses that we went through above.

Categories
Forex Psychology

Self-Calming Techniques for Forex Traders

Forex trading is known to cause a rollercoaster of emotions – from excitement and self-fulfillment, to anxiety and bitter disappointment, along with every other emotion in between. Sometimes, the best thing to do is to step away and take a break from trading until you can get your emotions under control. However, many traders don’t want to miss out on opportunities, so taking a break from trading might be difficult. One of the best ways to get yourself more level-headed is to figure out a self-calming technique that works for you. Some of these can be practiced while trading, others might require you to step away for a short time. Either way, these techniques can help clear your mind so that you can get back to trading. Here are some popular calming techniques:

Forex trading is known to cause a rollercoaster of emotions – from excitement and self-fulfillment, to anxiety and bitter disappointment, along with every other emotion in between. Sometimes, the best thing to do is to step away and take a break from trading until you can get your emotions under control. However, many traders don’t want to miss out on opportunities, so taking a break from trading might be difficult. One of the best ways to get yourself more level-headed is to figure out a self-calming technique that works for you. Some of these can be practiced while trading, others might require you to step away for a short time. Either way, these techniques can help clear your mind so that you can get back to trading. Here are some popular calming techniques:

Forex trading is known to cause a rollercoaster of emotions – from excitement and self-fulfillment, to anxiety and bitter disappointment, along with every other emotion in between. Sometimes, the best thing to do is to step away and take a break from trading until you can get your emotions under control. However, many traders don’t want to miss out on opportunities, so taking a break from trading might be difficult. One of the best ways to get yourself more level-headed is to figure out a self-calming technique that works for you. Some of these can be practiced while trading, others might require you to step away for a short time. Either way, these techniques can help clear your mind so that you can get back to trading. Here are some popular calming techniques:

Practice Conscious Breathing

Perhaps one of the quickest ways to calm yourself after a big loss is deep breathing. This is a simple, yet effective solution that helps you get your head back in the game without missing anything. You just need to take a few slow deep breaths to expel tension from your body. Most people recommend taking about 10 deep breaths. Then, you can get back to trading almost immediately.

Listening to Music

Music can really help to influence our emotions, so calming or happy, upbeat songs can help out when you’re feeling down. This is also something you can do while trading, so you don’t have to worry about missing a good opportunity. Just try not to turn up the music too loud, otherwise, it could become distracting. You’ll also need to pick the right kind of tune and be sure to avoid depressing songs.

Try Positive Self-Talk

When you’re trading, is your inner voice calm and relaxed? Would you want someone else to talk to you in the same way you talk to yourself? If the answer is no, then you need to be kinder to yourself. Tell yourself that everything is going to be ok and that everyone loses sometimes. Don’t beat yourself up when you make a mistake – everyone does.

Try Meditation or Yoga

Many people swear by calming exercise techniques like yoga and meditation. These practices aren’t only good for dealing with the stress of trading and might actually help with other stressful aspects affecting your life. Of course, this one does require you to step away from your device for a while. In some cases, it might be better to unplug completely for a while after all. Then, you can come back for a fresh start with a clear mindset and more focus.

Use Grounding Techniques

Grounding is an easy task that involves focusing on the physical world instead of your own inner thoughts. This is another quick solution that can help calm anxiety or fear that might be caused by forex trading. Here are a couple of examples of grounding techniques but know that there are more examples online or you can even come up with your own:

  1. Name 5 things you can see, 4 things you can hear, 3 things you can immediately touch, 2 things you can smell, and one thing you can taste at that moment.
  2. Count to 10, or say the alphabet.
  3. Clench and release your fists.
  4. Place a cool washcloth on your forehead.

As you can see, these are all simple but effective ways to calm yourself down and they can be done right from your trading station.

Categories
Forex Psychology

The Dangers of Envious Trading

Have you ever seen a video, social media post, or anything else posted by someone who claims to be a successful forex trader? Often times, these posts show that those traders are living a luxurious lifestyle. You’re likely to see big beautiful homes, fast sports cars, photos from multiple vacations, expensive clothes, and other luxuries that these people are able to purchase. It’s easy to look at this and think that you want that for yourself; after all, there’s nothing wrong with being ambitious.

Have you ever seen a video, social media post, or anything else posted by someone who claims to be a successful forex trader? Often times, these posts show that those traders are living a luxurious lifestyle. You’re likely to see big beautiful homes, fast sports cars, photos from multiple vacations, expensive clothes, and other luxuries that these people are able to purchase. It’s easy to look at this and think that you want that for yourself; after all, there’s nothing wrong with being ambitious.

Have you ever seen a video, social media post, or anything else posted by someone who claims to be a successful forex trader? Often times, these posts show that those traders are living a luxurious lifestyle. You’re likely to see big beautiful homes, fast sports cars, photos from multiple vacations, expensive clothes, and other luxuries that these people are able to purchase. It’s easy to look at this and think that you want that for yourself; after all, there’s nothing wrong with being ambitious.

So, maybe you’ve already started trading, or you’re considering it. Perhaps you even know someone or have a family member that trades. Forex trading can be a profitable income source, but you aren’t going to become rich overnight from doing it. You may already be disappointed with your results, or maybe you’re setting yourself up for failure by entering with unrealistic expectations. Here are a few things to think about when it comes to being envious over the success of other traders:

Many of the people you see promoting how rich trading has made them, probably have income coming in from other sources. They might own a business or even work as a CEO at a company.

A lot of these people have been trading for quite some time. It may have taken them years or even decades to become millionaires. If you have a big deposit, you might get there quicker, but don’t buy into get rich quick promises. It takes time to make it to the top.

It takes a large deposit to make a lot of profits. It’s true that we all start from the beginning. However, some of us start with $5, while others might have $25,000 to invest.

Some of these people might get paid for attracting new traders. Or maybe they have a book to promote. This makes them more likely to exaggerate their results.
This doesn’t mean that you can’t get there someday, only that you need to have realistic expectations before you begin. Giving into envious feelings can be dangerous. It might lead you to make trading decisions that aren’t well-thought-out, to invest money that should have been used on necessities out of eagerness to turn a profit, or you might even fall for a scheme that claims it will get you rich quick.

Some traders might hear someone they know talking about their strategy and try to hastily copy it, only to lose money because they don’t know exactly what to do. Being envious of a more successful trader also might lead you to downplay your results. If you’re making a profit, then you’re off to a great start. Don’t put yourself down because you only made $5 – celebrate those small wins that will one day become much larger gains. Besides, making a small profit is better than losing money.

If you allow your emotions to affect the way you trade, you’re destined to make mistakes. Remember that it is ok to want to model another trader’s success; you just need to understand that it is going to take time and invested money to get there. Instead of feeling the urge to trade more to reach their level, spend more time learning about different strategies and concepts related to trading, and consider keeping a trading journal to monitor your progress. It’s true that trading can make you rich – eventually. If you begin with realistic expectations and keep negative emotions like envy at bay, then you’ll have the best chance of success.

Categories
Forex Forex Psychology

The Problem with Overconfidence in Trading

Confidence is usually thought of as a good emotion – if we are confident in ourselves, we feel reassured that we can do anything. This is a great outlook on life, but when it comes to trading, confidence can be a negative emotion. Let us explain why. Once traders become confident, they tend to become […]

Confidence is usually thought of as a good emotion – if we are confident in ourselves, we feel reassured that we can do anything. This is a great outlook on life, but when it comes to trading, confidence can be a negative emotion. Let us explain why. Once traders become confident, they tend to become […]

Confidence is usually thought of as a good emotion – if we are confident in ourselves, we feel reassured that we can do anything. This is a great outlook on life, but when it comes to trading, confidence can be a negative emotion. Let us explain why.

Once traders become confident, they tend to become less receptive to criticism and less likely to spend time educating themselves. Some traders might feel that they are on a lucky streak, not unlike gambling. And just like with gambling, this often leads traders to take more risks and to lose huge amounts of money. There’s nothing worse than feeling on top of the world – and then losing it all due to your own stupid choices.

Overconfidence in trading results in something that has been labeled ‘King Kong Syndrome’. A trader suffering from this would experience a series of winning trades, which would result in them choosing to trade more. As they win more and more, those traders pay less attention to the market and convince themselves that they are riding on luck. The winning streak then comes to an end with a difficult reality check where those traders lose everything. The traders that are most likely to fall victim to this demise are beginners that don’t have a lot of trading knowledge. Using too high of a leverage or a huge lot size can contribute to the losses that these traders will experience. Many beginners have emptied their trading accounts because of this and give up on trading for good.

King Kong Syndrome is tied in with trading psychology, which involves the way that our emotions change our trading decisions. Fear and greed are major contributors to how we trade, but excitement and obvious confidence in oneself seems to be the major emotions connected to King Kong Syndrome. Remember that anyone can make this mistake, it isn’t only something that affects beginners. In fact, research shows that men – especially single men, are more likely to fall victim to overconfidence than women are. Beginners may be more prone to this phenomenon, but it can affect any trader out there.

So, how does one avoid making these mistakes and falling victim to King Kong Syndrome? First, you need to understand that confidence in your trades is important, but you shouldn’t feel overly confident. Conducting research and paying attention to fundamental and technical analysis is important, and they can help us feel confident about the trades we’re about to make. But we shouldn’t be too confident – no matter how much research you’ve done, you aren’t guaranteed to get the results you’re expecting. Always set a stop loss and watch how much you’re risking, no matter how much information you’ve gathered about the market.

Simply being aware of this problem is another way to avoid it. Having a good trading strategy also plays an important role. Without a good strategy, you’re basically just gambling with the outcome of your trades. Your plan needs to account for different market conditions and long-term outcomes. Don’t fall victim to overtrading, as most traders amass profits from making smaller, safer trades.

Never make the mistake of thinking that you’re too good to learn something new. No matter how long you’ve been trading, you can always get better and there is more information to learn. Those that give up on trading aren’t always beginners. Many of those traders once considered themselves to be experts or unstoppable, but a few big gambles and the King Kong Syndrome can change that.

Since King Kong Syndrome is tied to one’s emotions, you need to think about the emotions that you’re feeling when trading. If you feel overly anxious, excited, greedy, or anything else, take a break. It’s best to trade with a level head so that you can see the big picture without making hasty decisions. And this goes for overconfidence too – if you’re on a winning streak and you see yourself getting a big head, it may be time to clear your head and take a break. Remember that confidence is important, but too much confidence can cause one to risk too much and make bad decisions.

Being a successful trader involves doing a lot of research and having a well-thought-out trading plan with minimized risks. Good traders can control their emotions and never let them cause bad trading decisions, or they know when to walk away when their emotions are changing the way that they think. Don’t make the mistake of assuming that you’re the best trader out there and never rely on luck. Being a profitable trader comes down to strategy – luck is only an illusion and every winning streak will come to an end if those decisions aren’t made based on facts and data. Be sure to do your research and don’t allow yourself to wipe out your trading account because of King Kong Syndrome.

Categories
Forex Forex Psychology

The Psychology Behind Fear in Forex Trading

Trading psychology studies the ways that one’s emotions can affect their trading habits. From excitement and greed to fear and anxiety, emotions can wreak havoc on our results if we let them. Here are a few examples of ways that emotion can interfere with your trades: A trader experiencing crippling anxiety, also known as analysis […]

Trading psychology studies the ways that one’s emotions can affect their trading habits. From excitement and greed to fear and anxiety, emotions can wreak havoc on our results if we let them. Here are a few examples of ways that emotion can interfere with your trades: A trader experiencing crippling anxiety, also known as analysis […]

Trading psychology studies the ways that one’s emotions can affect their trading habits. From excitement and greed to fear and anxiety, emotions can wreak havoc on our results if we let them. Here are a few examples of ways that emotion can interfere with your trades:

A trader experiencing crippling anxiety, also known as analysis paralysis, enters trades too late or fails to enter a winning trade altogether, even though they knew it was a good move.

A trader that is excited might fail to exit a trade when they should because they are feeling lucky. This could cause the trader to stay in the trade for too long.

A trader that is feeling greedy might want to make every cent possible and could stay in the trade past their take profit goal. Otherwise, the trader might close out the trade after incurring a very small loss because they don’t want to lose anything more.

While all of these problems can cause serious problems, fear is probably one of the worst emotions that traders can experience. Fear causes us to doubt ourselves and our capabilities. Have you ever allowed fear to interfere with one of your trades? If not, then think of the following ways that fear may have played a role in a bad decision you’ve made:

Have you ever failed to enter a trade even though you knew it was a good move?

Have you ever experienced a series of losses that almost made you feel paralyzed to make another trade? Did you feel as though trading was riskier than normal or your luck was bad?

Has the thought of losing money ever stopped you from making a move that you knew you should make?

Have you ever exited a trade too early because you feared the market would move in the other direction, only to watch that trade go on to be a winner?

If you answered yes to any of the above, then chances are that fear has in fact affected you while trading. There are several reasons that could cause a trader to feel fearful. Losing money is perhaps the most prevalent. After all, it takes hard work to make that money and the thought of losing even some of it is scary. Some fear failure altogether and cannot stand the idea of wiping out their account and failing as a trader. Making a mistake, failure, and other personal issues can tie in with trading because of the uncertainty of it all. Then, anxious traders might also doubt their abilities and overthink their strategy even when it’s a solid one. There are many different factors that can cause fear in a trader, and all of them have to do with the way that person thinks in general and while under pressure.

The first step to solving this problem is realizing that it is affecting you. If you’re reading our article, you’re likely already aware that fear is interfering with your trades. Fear is a powerful emotion that clouds our judgment, but there are ways to stop it from hurting your trades.

If you’re experiencing both fear and anxiety, then you likely have a common problem known as analysis paralysis. Traders experiencing this are like deer caught in headlights. They can’t decide in time, so they either enter trades way too late, or they fail to enter them at all because they cannot make up their mind.

There are ways to overcome this, however. Many suffering from this problem of overanalyzed data. They might use too many indicators, for example. Simplifying the number of indicators you’re using or even trading without them are good ideas if you have a ton of indicators running at once. Having a good trading strategy is another measure you can take to overcome the fear and anxiety behind analysis paralysis. Or you can take other measures, like meditation or yoga, music, or another relaxation technique to help calm yourself. There are lots of resources online related to this problem and how to manage it.

Once you’re aware of the ways that fear is affecting you, you can figure out how to use it to your advantage. Understand that highly driven people are usually driven by fear. If you don’t want to fail, then why not put forth every effort to be the best trader you can be? Instead of being paralyzed by fear, you should let it inspire you to do better. Learn more, perfect your trading strategy, figure out the best ways to analyze data, and so on. Embracing your fear can help you to use it to your advantage.

Every trader should know that fear is an understandable emotion that can stem from several different places when one is trading. Whether you’re fearing failure, worried about losing money, or something else, the first step is identifying where this emotion is coming from. Once you’ve done that, you can work on getting better. You might not be able to get rid of your fear entirely, but there are ways that one can use it to their advantage and continue on to trading success. If you’re suffering from analysis paralysis, then there are actually several different methods that might help you overcome that. At the end of the day, every trader needs to know that fear doesn’t have to interfere with their trades or bring an end to their trading career as long as they learn how to manage it.

Categories
Forex Psychology

The Four Stages Of Loss In Forex Trading

When we look at trading as a whole, losing trades is just as much a part of trading as winning is. In fact, it can actually be a more beneficial experience at the start, as long as your psychological mind can take it that is, when you make a trade, if you win, someone is […]

When we look at trading as a whole, losing trades is just as much a part of trading as winning is. In fact, it can actually be a more beneficial experience at the start, as long as your psychological mind can take it that is, when you make a trade, if you win, someone is […]

When we look at trading as a whole, losing trades is just as much a part of trading as winning is. In fact, it can actually be a more beneficial experience at the start, as long as your psychological mind can take it that is, when you make a trade, if you win, someone is on the other side making a loss so it is bound to happen to you at some point.

While we know that it is a major part of trading, that doesn’t make it any easier to deal with, in fact, taking losses is the main reason why a lot of people stop trading, and I am not referring to people who have blown their accounts, but a lot of people who lose motivation or gain some form of emotional trauma from the losses will simply give up due to lack of motivation or fear of losing more.

So why does it have such an effect on some people, if you play video games and lose a game, how do you feel? It’s never a great feeling and this is a game that had nothing at stake, so when there is a monetary value attached to that loss it can magnify those feelings a lot. Unfortunately, the effect that it can have on people varies from person to person, some may shrug it off, others may receive what is known as emotional trauma and would then struggle to recover from the loss, especially if they were risking more than they should be.

With any sort of loss in life, whether it be money, a loved one, or anything really, there are certain stages that people will go through, these are normally called the stages of grief, but we will name them the stages of loss.

Denial

Denial often comes when a loss occurs that you are not prepared to accept, you still believe that the trade was right, it was everything else that was wrong, definitely not your trade. You often hear phrases like stop hunted in regards to this where people believe their broker moved the markets to take out their stop loss. This is a natural feeling to have, it can help you to ease any sort of blow to your motivation or ego.

Rationalization

After you have been denying the loss, the next stage is often rationalization, this is where you start to look at everything that was right about the trade rather than what went wrong, n fact you will try to completely ignore anything that went wrong in a bid to convince yourself that you did nothing wrong. You will look at the smallest of details in order to convince yourself of looking at the strategy, the stop losses, the take profits, and everything in between.

Depression

Probably the most devastating of the stages, this is where you have already looked at everything that there was apart from one thing, yourself. You must have done something wrong, maybe you aren’t good enough, why am I trading? Those are some of the questions you may start to ask yourself, this is a bad stage for your ego and also the stage that kills most people’s motivation to trade. For some, this stage can be relatively short, especially if the next trade wins, however for those that have lost multiple trades in a row, or a larger than the normal amount then this can be a devastating phase that can last for quite a long time.

Acceptance

Realizing that things have gone wrong, but you know it is wrong to blame yourself or anything else for it, it happened, now we need to move on. This is where a lot of traders get out of that depression or trauma and begin to look to the future again, planning new trades to take. Acceptance isn’t about being ok with the loss, you will always wish it had worked out, but it is about moving past it and looking to other aspects of trading and new trades.

The stages of loss that we have mentioned can be experienced with anything in life, but the key to getting over both the loss and these stages is to adapt and learn from the loss, move on and continue with your strategy, hopefully to a more successful level.

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Beginners Forex Education Forex Basics

The Importance of Initiative

The initiative could be defined as an emotional skill, attitude, or act of anticipation and proposing solutions before someone asks for it. Being aware of the initiative is a proactive behavior where we have the ability to put ourselves in a better position. The initiative is a skill we learn in childhood but one we […]

The initiative could be defined as an emotional skill, attitude, or act of anticipation and proposing solutions before someone asks for it. Being aware of the initiative is a proactive behavior where we have the ability to put ourselves in a better position. The initiative is a skill we learn in childhood but one we […]

The initiative could be defined as an emotional skill, attitude, or act of anticipation and proposing solutions before someone asks for it. Being aware of the initiative is a proactive behavior where we have the ability to put ourselves in a better position. The initiative is a skill we learn in childhood but one we can develop in adulthood. It is about making things happen, overcoming difficulties and barriers that appear when we are trying to achieve a goal. It is a dare to thinking differently, it is a flame that lies inside all of us. To have initiative is the difference between optimistic and pessimistic, between active and passive, between direct or be directed.

Why is it important to have initiative? One of the first elements that we need to have in our trading psychology is initiative because there is going to be different times in our life where we could be lost without it. When someone attempts to become a professional forex trader someday, he is separating himself from everybody else. The ability to act or to take charge, understanding the rewards of movements, and try to learn more is what makes a difference. Most people, almost everybody we know doesn’t do this because they are too lazy or too scared to take that jump. As forex traders or potential forex traders, we don’t want to be like everybody else. Most people don’t have the motivation to ever even look at that direction or so many people know exactly what it is but wouldn’t be caught dead trading it because they are scared. You guys decide what is worse. Forex involves risk, we can lose every last cent we put into it, most traders were there a lot of times but only a few were able to shake it off because they were fearless and studious in their game. Everybody wants to come up with excuses. Excuses like: “I wasn’t born here”, “I am a female”, “I’m an immigrant”, “I don’t have enough money to start this”…

The problem is, nobody cares. No matter the situation is we need to educate ourselves, we need to work smart and we need to be relentless. In a world we live in, there are multi-billion dollar industries that are created to keep us unmotivated, lazy, and unproductive and they really work, they are pretty good at what they do. A significant majority of people around us are lazy and they never take initiative. The reason most people don’t even bother jumping into forex trading, even if they’re a little bit interested in it, is just because of the fear of losing everything. This is no different from any other investment out there. The fear of losing everything and having serious responsibility for something are probably the two main feelings that could mess with our motivation. The truth is that most of our fears are often just illusions and they might be completely illogical. The worst-case scenario is never as bad as we think it is going to be. There is a small story in the book called “The 4 Hour Workweek”. Back in the ’80, a guy goes to Ghana to do some volunteer work and there he finds out that Ghana starts to fall apart. Major turmoil hit that country and he got stuck there, he couldn’t come back. He was stuck there eating just cornmeal and spinach every day for breakfast, lunch, and dinner.

That was only available, even there was a problem with clean water. So his worst fears of going to a place like this were pretty much realized. Soon after he was like: “Ok, this is not the end of the world, I have everything that I need to survive. Apart from that, I have a lot of new friends and I am actually having fun”. Years later not only does he look fondly on his time there but he knows that if for some reason he were to fell into abject poverty it wouldn’t be that tragic. When he was there, the things he learned and the friends he made were irreplaceable. From this story, we can learn that our absolute worst-case situation can be temporary especially if we are in some developed country. If we are smart enough and if we have resources we can get out of any bad situation. So at the recession-proof market like forex is, our progression could be unlimited and we should stop worrying about losing everything. We don’t want to let that fear be on our way.

Another reason that we have heard from people is that forex is too complex and overwhelming to learn. Surely that forex is not an overnight thing to learn but there are tons of online material out there that is easily accessible and completely free. Forex is around 4 trillion dollars a day market that traders are trying to go in and extract money from over and over so there could be a lot of benefit for those who are persistent and want to build a career in trading. Honestly, the worst thing is not doing anything. The biggest risk we can ever take is simply not taking any. Why? Because we could end up with no retirement money. Most people have absolutely nothing saved. Relying on someone always and all the time might not be the safest house for us, nobody wants that.

Unfortunately, that is probably the path of many levitating souls around us. We need to believe that we are capable of achieving wonderful things and if we don’t attempt them and follow through them, then we might completely fail. We don’t want that to happen. We don’t want to grow old with regrets in our eyes. The initiative is not one time only action. We need to understand even if we had that initiative to get started and that part wasn’t a problem, it is going to come into play again. We will need initiative more than once, probably more than twice in our trading career. There could be a few different phases on our trading path where we might need a firm initiative. Many of us trading demo account right now which is great but there will come a time where we need a transition into real money and that is going to be a serious challenge for us. We could try to lay back and not even maintain demo trades, but if we try to carry that strategy over into transitioning to real money, we might end up destroyed. Watching our money going up and down in a real money account knowing that is actually our money could largely play tricks on us.

The fact of going from the demo into the real account is a big leap for many people. That might be too much for some people so we need to be ready and not off-guard when that moment comes. But simply some people don’t feel comfortable about investing, they don’t want to do it themselves. They feel more secure to hand it over to somebody else. Eventually, we are going to walk in that fire where we trade with our real money and it is not going to be easy. So we could try to trade our own money and hope we can get good enough return year after year to compound interest and maybe get our retirement savings or our spending money. We could also try to trade other people’s money whether it means setting up our practice and trying to draw clients or join up with the big company, prop firm, or hedge fund. So transitioning through these different phases we will need strong initiative if we want our mindset to evolve. Just a simple walk through these stages is a big psychological leap but if we want to be professionals one day these are the routs we need to take. Knowing that we are going to be tested, judged and that we are going to deal with real money are some factors that are part of the process but the potential rewards could easily outweigh any fears we might have of underperforming.

We need to take the initiative and give ourselves a chance. For some of us who still struggle with initiative, a good thing to do might be to read the book called “Rich Dad Poor Dad”. This might have an impact on some people to try to approach differently to certain things in their life. The mentality, approach, end-game, and mindset are some of the key elements that we should be always trying to upgrade in our trading psychology so we could hopefully be in the right headspace. After those progressions, we just need to make sure not to leave that headspace ever. So for all of you guys, good luck and never give up.

Categories
Forex Psychology

How to Prevent FX Trading from Being Overwhelming

On the outside, trading looks pretty straight forward, you just guess whether the markets will go up and down, easy right? That is the view that a lot of new traders have, it isn’t until they actually get into trading that they come to realise how much there actually is, and learning it is a […]

On the outside, trading looks pretty straight forward, you just guess whether the markets will go up and down, easy right? That is the view that a lot of new traders have, it isn’t until they actually get into trading that they come to realise how much there actually is, and learning it is a […]

On the outside, trading looks pretty straight forward, you just guess whether the markets will go up and down, easy right? That is the view that a lot of new traders have, it isn’t until they actually get into trading that they come to realise how much there actually is, and learning it is a full-time job.

When you first get into trading, it is hard if not impossible to understand all the information that is being thrown at you, and every day new patterns or ways to analyse the markets are coming to light which makes it a never-ending learning process. Plans that have been created can be made obsolete a few hours later due to a single bit of news, things change within the markets and it can frustrate you, but the key to being a successful trader is overcoming those stresses and adapting to the markets.

When your plans aren’t working and things are going against you, it is often the case that you need to make some decisions, and quickly. This creates an additional time pressure that you really do not need. Do you stay with your current plan or strategy, or do you need to make a new one? Each second that you wait is the situation moving further away from you, it can feel that there is too much information and not enough time to process it.

In order to overcome this, or at least some of it, it is good to look at yourself and see how it is that you actually perceive your time. Sounds like a strange thing to say, but when you are in that panic mode, everything seems like it is moving 10 times faster than it actually is, your thoughts are racing but you aren’t actually coming up with any solutions, in order to combat this, you need to regain the structure that you had before things went wrong.

A way of doing this is to actually have several plans at the same time, have a plan for one market conditions, a plan for another and so forth, this way, no matter what happens you have a plan and know exactly what to do, this won’t prevent losses, nothing can, but it is at least a way to give you a structured guide on what you need to do when certain things happen within the markets. Simply refer back to the most relevant plan rather than panicking and struggling to adapt.

Doing this will make you feel that you are back in control of your trading, it will alleviate a lot of the stresses and you will feel far better for it.

Categories
Forex Psychology

Why Does Forex Create a Self-Maximization Mindset?

How can you diversify your income streams and improve yourself at the same time? It’s decision time. It’s time to decide whether you are going to just stick to what you’re doing right now or whether you are going to put time and effort into making yourself a success. You could carry on holding down […]

How can you diversify your income streams and improve yourself at the same time? It’s decision time. It’s time to decide whether you are going to just stick to what you’re doing right now or whether you are going to put time and effort into making yourself a success. You could carry on holding down […]

How can you diversify your income streams and improve yourself at the same time?

It’s decision time. It’s time to decide whether you are going to just stick to what you’re doing right now or whether you are going to put time and effort into making yourself a success. You could carry on holding down your job and carry on trading, or you could decide that it is in your best interest to add new streams of income to your life.

Why would you choose to do that? There are two main reasons. The first is that by diversifying your sources of income, you can insulate yourself from any future shocks. The more streams of income you have, the better protected you are from things like the economy tanking or your company going under and leaving you unemployed. The second, perhaps more convincing reason is that you are almost sure to end up making more money this way. The greater the number of income streams you introduce into your life, the greater the odds are that one of them will become a runaway success.

Of course, that’s not an easy thing to achieve. Particularly if you’re stuck in a rut or have allowed your brain to talk you down to the point where you don’t have the confidence to start something new. But, if you’re reading this, that means you have in all likelihood already overcome that first hurdle. You have probably already started forex trading or are on the road to teaching yourself how to trade. Take a moment to give yourself a hearty pat on the back because that is no small feat. It is, in fact, a paradigm shift away from being a bystander in your own life and towards being able to know what you want and how to go out and get it.

Diversifying Income Streams

The huge advantage you have, living in this time, is that there are now more ways than ever to explore new avenues of earning an income than there ever have been before. Better still, a great many of them do not require you to quit your job or abandon your forex trading routine. They can be bolted on without causing the kind of life-changing disruption that would have been inevitable in the past.

Of course, as is the case with everything you do as a trader and – speaking more broadly – every big decision you take in life, you will have to run a careful risk assessment to figure out the potential pros and cons. Not just in terms of your financial portfolio but also in terms of the amount of time invested, whether that time could have been used more productively on another endeavor and, ultimately, on your own personal wellbeing.

Your risk assessment cannot, however, involve no risk. Otherwise, you are just back to square one. Why take any risks when you can sit on your couch and eat chips? That’s not the name of the game. Imagine you’re in a casino and the odds of winning a hand at blackjack or roulette are 12-1. That means that out of 13 possible outcomes, 12 are going the way of the house but if the game does happen to go your way, you stand to make 12 times your stake. Now, of course, betting on a future outcome like that makes little sense. The game is stacked in the house’s favor. That’s why casinos exist in the first place because they can make money by making sure the odds are always in their favor.

Take a look at Las Vegas or Macau in China. There’s a reason why all those casinos look so opulent and it isn’t because the poor schmucks betting on a 12-1 hand are winning all of the money. Okay, but now imagine that the odds of winning the game stay the same but that the winnings go up by a factor of 100. Your chances of winning haven’t changed at all but the potential gains if you do win, gains are now astronomical. No casino would deliberately set up a game like that because they would be out of business in no time. One of the reasons they would go out of business is that suddenly it makes much more sense to make that bet from the punter’s point of view. The reason is that a risk with such a large potential upside starts looking more like a calculated risk that promises to pay out a reward that is out of proportion to both the odds and the initial stake. In other words, it becomes an opportunity.

The point is that when looking for ways to diversify your income, your goal is not simply to search for the low-risk option but to identify real opportunities.

Opportunities for Self-Improvement

Getting to the gist, there are many ways to invest your money that will look on the surface like they provide an additional income stream where you can just sit there while your money works for you. They include anything from peer-to-peer lending, across ETFs and dividend-heavy equities, to investing in the real estate market. These are all likely to be potential components of your financial portfolio in one way or another. They are not, however, very imaginative ways to diversify your streams of income in a meaningful way. For one thing, while the risk may appear to be low, they are not entirely devoid of risk. Moreover, while these options are relatively low-risk, they also do not offer spectacular rewards. In other words, they are not real opportunities.

Another, perhaps better, way to go is to look for business opportunities.

In that sense, we are blessed with the true plethora of business opportunities that the internet and other modern technologies provide. It can be said we are also still very much in the pioneering stage of online business. While it may seem like everyone is online selling something or marketing themselves in some way, this couldn’t be further from the truth. Wherever you are in the world, you will find that most people around you have still not cottoned on. Most people are still bumbling around, unaware of the potential these high-tech tools offer. All of this means there is still time to get in, if not on the ground floor, then at one of the early floors and let the elevator take you up.

What’s Stopping You?

Here’s what’s stopping you and why it shouldn’t. What’s stopping you right now from starting some form of online business in addition to your job and in addition to your trading, is the very same thing that for a long time stopped you from getting into forex trading in the first place. Fear. Now, the fear we’re talking about here is fear of failure. There’s nothing to be ashamed of, we all have it in one form or another.

Here’s what’s lucky about this situation: The reasons for overcoming that fear are precisely the same as they were for overcoming your fear of getting into forex trading. In fact, not only are they the same but there is one bonus reason that makes this kind of endeavor even more worthwhile. So, when you start a new business venture and that business doesn’t work out, if you’re smart, you still get to walk away with quite a lot.

There will be losses, that’s for certain. But the gains are almost certain to outweigh the losses and they should be factored into your risk assessment. The first gain is that you will have taught yourself a lesson about your own resilience. Your business may have failed but you can pick yourself up and get right into the next thing. That resilience will kill your fear of failure right away. The second gain is that you will have learned from any mistakes you made along the way and will be able to do things better at the next go around. This is a gain from the experience that people actually undervalue time and time again.

It’s a little known secret that no number of online courses and video tutorials will teach you. In short, sometimes you need to mess things up yourself so you know how not to do it the next time. The third gain, the bonus gain, is all of the many big and little things you will have learned along the way. Even if your venture fails, you will have invested time and effort into yourself. You will have bought yourself a whole new skill set that you could not have acquired in any other way. Most if not all of those skills will be applied either to your next business venture or to those things you are already doing – your day job, your daily life, and, yes, even to your trading.

The Idea Factory

Ok, so by now you’re probably interested but maybe you don’t have any ideas. First of all, that is hugely unlikely. Give your brain just a few minutes to explore the enormous scope for new businesses out there and it is bound to come up with at least ten viable ideas. If not, however, even that is made easier for us by the wonderful world of the internet. Get online and do some research, let your searches be your guide. Get on social media, get on YouTube, find out what other people are doing and adapt it to something that’s your own. Your brain is just by its very nature a magical source of ideas and plans and schemes but plug that into an online world with millions of other brains doing the same thing and you have yourself a veritable factory of ideas.

The online world is a great place to explore, investigate, and actually put into practice any range of business ventures you care to name. Lots of people have made a go of selling actual physical products online but that’s just a starting point. Using all the tools the internet provides makes it possible not only to sell products but services, brands, entertainment, and even the very skills you learn along the way as you build and develop your business. You could, just as an example, offer up the skills you learn in growing a business as services to other businesses. This is because, as your experience expands, you will come to know all sorts of things about marketing, logistics, accounting, project management, and a whole host of other fields you never knew you would be able to master.

What’s Hot?

One of the things that are particularly hot as an online commodity these days is knowledge. People are hungry for new knowledge and new skills like never before and there is a rapidly growing sector of online businesses ready to respond to that demand. You may be thinking, “well, I’m no expert on anything” but that’s the wrong approach. That’s the fear talking. First of all, your experience is unique, the way you understand the knowledge you have is a complete one-off, your approach to explaining and transferring that knowledge to others might be just what people are looking for.

Often the greatest experts in a field are so deep into the area they work in that they miss the little things that they too had to learn along the way. But those little tips and tricks, they’re like gold dust right now. The other point to make here is that there has never been a better time to learn new skills and perfect the skills you already have. Use all of the tools at your disposal, follow people on social media, watch tutorials and read articles, take an online course if you feel you have to.

If you can combine the knowledge you can pull down from the airwaves with some experience of putting it into practice – even if you failed along the way, or perhaps especially if you failed along the way – you are almost certainly someone people will be able to learn from. It couldn’t be simpler, learn from others, make that knowledge your own through practice and experience, and put it back out into the world. Others are doing it and making it work, why wouldn’t you?

Just Do It?

As we said in the beginning, the only force holding you back is a fear of failure. And since it is now clear that failing, but failing upwards, is part of the journey, now is the time to convert that fear of failure into a fear of quitting. The only real way to fail is if you fail downwards. That is if you try something but quit along the way before you’ve had a chance to learn anything. That puts you in with the 95 percent of ordinary Joes who are just muddling along through life without a plan. Here’s the good news, all you need to step out of that undesirable state of affairs is to stick at it.

So leap forward, diversify your income, and yourself. Try starting a new business and do it with a smile on your face because even if you fail, you will come through to the other side better, more resilient, smarter, and with some new marketable skills. Diversification works in forex and it works in life too.

Categories
Forex Psychology

Trader Personality Test: Find your Pros and Cons

This concept that we will discuss here is not new. Personality Tests are used when hiring new employees. It is not all about the skills they may have, the employer may want his staff to have certain personality traits for the task in mind or company culture. Companies know that they may perform better for the role, sometimes even the skills and knowledge are secondary. Traders are independent, they do not have anyone superior, their performance is easily measured. The forex market will be their judge and a reflection of the effort, personality, and experience.

This concept that we will discuss here is not new. Personality Tests are used when hiring new employees. It is not all about the skills they may have, the employer may want his staff to have certain personality traits for the task in mind or company culture. Companies know that they may perform better for the role, sometimes even the skills and knowledge are secondary. Traders are independent, they do not have anyone superior, their performance is easily measured. The forex market will be their judge and a reflection of the effort, personality, and experience.

This concept that we will discuss here is not new. Personality Tests are used when hiring new employees. It is not all about the skills they may have, the employer may want his staff to have certain personality traits for the task in mind or company culture. Companies know that they may perform better for the role, sometimes even the skills and knowledge are secondary. Traders are independent, they do not have anyone superior, their performance is easily measured. The forex market will be their judge and a reflection of the effort, personality, and experience.

Still, it is rarely known prop companies test their traders’ personalities as there are so many videos, books, and mentors that are mostly focused on trading technicals, methods, management, and so on. If you have not heard already what are the two most important elements of trading, they are Risk Management and Psychology. Risk Management can be developed with testing and devotion but the Psychological part is a bit harder to master.

Everybody has unique personalities, habits, goals, and so on. Your Trading Plan and your Trading System will reflect this, and it should. Meyer Briggs Personality test is used by a group of prop companies so they can assess their new trader recruits and find out their strengths and weaknesses. If the company has the experience and has researched the personality-psychology relation in trading, they will know what traders’ mistakes are most likely to be. You will rarely find a video or a book about this if you are not searching, unfortunately, and it is such an important topic.

Prop company coaches even dare to say your Trading System is not important, it will increase your odds but it does not matter if you do not master your personality bad habits. Meyer Briggs test has 16 personality categories that cover enough psychological areas of a person so a trader can know on what weak spot he can focus on improving right away. How this is done depends on the weakness. What is important is to know that this test can be done for free, it is easy, and it is widely available. Once you complete it, we move on to explain how you can improve those bad aspects that bring your account down.

 

Know that this personality test does not have the right or wrong answers. In the end, you will have bad and good perks for trading as every trader has. There is no scoring, just the classification based on your answers. Let’s say you are stubborn. If you think this is all bad trait for trading you are wrong. It will mean you are not a quitter, you will likely keep trading despite the challenges. On the other hand, you could be doing things persistently wrong. What is even more interesting is that Forex will state this in your face as you trade. Are you persistent in chasing to recover that losing trade? Well, your account balance will suffer. Still doing this will bust the account. There is no way you can beat the market, if you want to become a professional trader, you will have to adapt.

Many traders that have been through the path of Forex trading have recognized they have changed for the better generally as a person. One of the great quotes that match the idea here is by Joseph Plazo saying that “ When it comes to trading in the market, winning is the matter of the mind, rather than the mind over matter…Playing a winning hand depends on knowing your own mind – and understanding the way psychology moves the market.” Finally, traders start to understand that mastering your mind for trading will take a lot longer than learning to make a good Risk Management plan. And it is perfected using special methods. Trading is 90% mental and 10% technical according to prop firm statements.

When you look at the market and have some basic knowledge to understand it, you will have an opinion. In a more scientific angle, this is subjectivity. This is your internal interpretation of the phenomena and how you deal with it. Your opinion could be aligned with the truth or not, in other words, you could be wrong. Objectivity is facts, our ability to get free from bias, prejudice. When two traders face and discuss what is going to happen next on the market, using the same data, they will form opinions. More often than not these will be the opposite. They will believe their opinions are facts even though in reality they are not. One of them will be wrong, the price will move in one way.

Money is tied to emotions. It will be our Subjectivity versus Objectivity. The separation of emotions from this is impossible according to the professional prop traders. It is very common to see a trader have great results on a demo account and collapse when trading with real money. They cannot trade the same way. If we can get to the point where we trade more on objectivity than on subjectivity, we are steps closer to consistent successful trading. This is one of the reasons trading systems are very helpful to see the objectivity.

The Personality Test has 4 classes that describe your Energy, Decision making, Attention, and Lifestyle. For each class, you have two opposite traits. In the end, there are 16 personality types possible. As you gain experience with trading, your personality results will reflect this. The traits describing your Energy can be Extrovert or Introvert, you make Decisions on Intuition or Sensation, Attention will be based on Feelings or Thinking, and your Lifestyle can be Judging or Perceiving.

Traders will have common opinions that the market is against them, that they are the victims. Of course, it is the trader who is in control. Forex cannot be controlled, except maybe by the big banks, but traders are responsible for their actions. The Personality Test will set you into an Introvert or Extrovert but you are a bland, more or less. Below are the peculiarities of each trader type.

Decision making is based on two traits:

Intuitive traders love patterns, correlations. They seek them out, they feel something is about to happen, they take the big picture and wrap their minds around. These patterns will be their facts. Hunches or feelings are the base of their research. Looking at the chart’s history is their main activity.

Sensing traders use all the sensory input to make a decision. This is the way they create facts, with everlasting desire to find more. Details that make the big picture is their way. Having all gathered, they make structures, linear processing, and an organized plan. Everything has to make sense, they rely on tools and precision.

Attention core is defined by:

Thinkers are more analytical. Analysis, logic, and principle. They want to detach subjectivity and focus on facts. Only objective criteria can make them make a decision. They can see imperfections in their system, engaging in self-criticism and everlasting need to improve it. Precision is required, the goals are defined clearly and the results cannot be in the gray zone. It is black and white, to enter a trade or not is clear to them. Math is their friend. Emotions are a sign to the system is not good enough for them and they will try to take emotions away with precise numbers, not fuzzy thinking.

Feelers like the abstract, intangible forces to guide them. They feel the market, focusing on what the emotions are trying to tell them. Facts are not a priority. Human values and needs create a way for them for judgment and decision making. Market psychology is their friend are more likely to act on it, Therefore, they are less objective, tend to force out bad trades led by strong emotions. If not in control, emotional traders are always in danger of default.

The energy of a trader will align on how they approach to problem-solving:

Introverts focus on their inner voice of ideas, concepts, theories, possibilities, abstractions. They need a reason for a consequence, the source, reasonable argument, proof. They will think reflectively. They will use the market data and action to measure, extract, and define facts. These facts are then aligned into a system used as a machine for decisions. The world is in their head.

Extroverts are outside of their heads. They find meaning in people and what is happening around them. Therefore, interaction is what motivates them, they will also move people into action, create events. They like to make decisions in a team, learn with others, take collective action. The expression is more important than to absorb.

Lifestyle will reflect on how they trade:

Judging traders do not have doubts when they want to trade, they act. Motivation is pumped internally, they will create rules. Unfinished business is not done by the judging trader, the task will be completed, fast. They will act once the basics are known. Plans are created and based on them the trades are executed.

Perceptive traders do not like plans, rules, and strict algorithms. It is not gray or white to them, it is fuzzy. Stop Loss placement is not exact, but close enough where they think it should be. Procrastination is common, easygoing, late at the meetings. They do not lack curiosity, they can adapt and be spontaneous. Before trading, they want to know everything about and tend to make bad trading decisions using too much information.

Now let’s see how all these traits mean for trading and traders. According to the research, all of them have bad and good habits in trading. Recognizing what type you are, you have a good starting point on what area to work on.

Starting with Extroverts’ strengths, they are energetic, passionate, they feel great, optimistic, and ready to trade. Group trading is a great way to trade, they thrive with teams. Chat is their favorite tool, talk about their ideas, and share with the team. Action is their middle name, when it is time to act they will have no fear. When the see the opportunity for trading, it will be done, fast. The weakness in trading is emotions. Extroverts get excited easily and get carried away. Passion for trading is great, but too much of it will cause overtrading, one of the most common bad habits. They may also underperform when alone or when too much information is given to them.

Introvert strengths are very good for trading plan construction. They are introspective meaning they will come up with ideas alone using their analysis. Information is how they base their decisions. That is why they want to know more. They will go deep and be thorough with every info they find. The weak points come with this desire to have more information and then overanalyze. Overanalyzing leads to hesitation. Introverts need just a bit more for that trade execution, until it is too late, missing the opportunity. They really care trade is a good one it blocks their execution. They like their ideas so much they do not want to share easily with others.

Decision-making strengths for the Intuitive type traders are based on patterns they easily see. They get the big picture, understand it, and act on it. Relationships for the movements are also noticeable for them. They zoom out and process all the “invisible” information and act on that. Sometimes they have reasons they cannot explain, but they just feel what is going on, on multiple levels. Their weakness shows up when they hang on to bias, hunch, and how they feel at that moment. If they are asked about a decision, they will have no factual or reasonable argument and probably disregard objectivity.

Sensing traders love details, systems, rules, easy to follow procedures. Organization and plans are precise. Research is top-notch and scientific. All this can be overdone and expose their weaknesses. These are overanalyzing, causing hesitation when trading. They are also stubborn. Once their system is complete it will probably work extremely well. But once the market conditions change at some time, it can stop generating profit. This is a nightmare for the sensing trader, the engineer, who is stubborn to stop trading with these conditions. Failure comes hard on them, they will not accept it and learn from mistakes.

Thinkers have a sea of ideas in their heads. Their strength comes from their mind, creating a reason, logic, clarity, goals, and finally, objectivity. After all, is set and done, they question if everything is based on facts and if it is objective. This is also a filter for emotions. The weakness comes from using the mind too much. Losing trades in a row will start the chain of thoughts about their system, create skepticism. Even when the trade is profitable, thinkers still think about that trade. Stress is something they experience more than other types.

Feelers’ main strength is understanding the market and the psychology behind it. They create a bond with the movements so they understand the relations although they find it hard to explain why. The big picture, the mood, and the energy of the market are easy to assess. Sometimes they can see the sentiment without indicators. The weakness comes from an emotional attachment to the trades. They will often disregard facts and arguments against their decisions. Trading on feelings alone will kick out of the game. Even when loosing extensively, their optimism will fuel their will to continue. This punishing weakness is boxed in with a rigid ruleset.

Judging a traders’ strengths can be very beneficial for trading. As masters of decision making, they will not hesitate. They will take action, complete, push to the goal. The plan will be followed to the letter, and the plan itself will be clear. There is only right and wrong, black and white, nothing in between. Their mindset does not allow doubts, any contrarian opinion will bounce off it. This manifests in the weakness of not taking advice. Additionally, low flexibility is another consequence of this mindset. Thus, traders of this type may have a steep learning curve.

Perceptive traders’ strengths come from their ability to be shaped into great traders. They are adaptive, change their mind, open for new ideas. Having a perceptive trader as an apprentice will be easy for the coach. Whatsmore, their curiosity will further improve their trading to an astonishing level of detail. Weaknesses out of all these positives manifest as being unsure of their decisions. Trades that they have entered could be closed before the Stop Loss rule. They change their minds, soak up information, and forex can easily play tricks on them. These decisions will be spontaneous.

Now once you have defined your weaknesses, you will need ways of eliminating them in trading. Discipline will not be enough. You may try to stay disciplined but your personality weakness will come out. Trying to change what you are is unnecessary. Admitting your weak points, faults, bad habits is a giant leap in trading. Naturally, you will tend to root them out. However, overtrading, risking, impatience, cannot be eliminated just by convincing yourself not do that mistake again. The mistakes will repeat. Because of this, prop traders even advise you to skip this step where you try to eliminate bad trading habits with discipline. Instead, create lifestyle barriers that separate you from the environment where the bad habits manifest.

This can be done in various ways. For example, if you are overtrading, you can appoint some sports activities that will pull you away from the trading platform. You will always feel the next opportunity is around a corner which you can take. This way, you will have an obligation, a barrier, pushing you away from the environment where your habits can manifest. These barriers may diminish at one point, but you will need to create new ways of avoiding exercising bad habits. This can usually be done in agreement with another person. Ultimately, your will to avoid things that bring your account down will decide if you are going to become a professional trader. After some time, the barriers will not be needed, your bad habits will be buried.

Key takeaways for your Personality Test results are:

  • Know that trading is 10% technical and 90% mental
  • Understand who you are and gain acceptance
  • Use your strong points
  • Do not try to fight your weakness, find ways to put it out of reach
  • Compensate your weak points with systems.
Categories
Forex Psychology

Four Ways to Boost your Confidence while Trading

Similarly to when opening up a new business, trading requires a certain level of confidence in oneself to succeed. Confidence is the pillar of any successful trading journey and many new traders end up not having enough courage to handle the risky endeavors that successful trading needs to bring in profits. Here we will go […]

Similarly to when opening up a new business, trading requires a certain level of confidence in oneself to succeed. Confidence is the pillar of any successful trading journey and many new traders end up not having enough courage to handle the risky endeavors that successful trading needs to bring in profits. Here we will go […]

Similarly to when opening up a new business, trading requires a certain level of confidence in oneself to succeed. Confidence is the pillar of any successful trading journey and many new traders end up not having enough courage to handle the risky endeavors that successful trading needs to bring in profits. Here we will go through four simple, yet essentials ways how you can boost your confidence whilst trading.

Learn your trade.

The best way to boost your confidence in anything you set your mind too is to challenge yourself to learn all that you can about the subject. Subjects such as trading might be overwhelming at first, with so many trading styles, techniques, approaches, and terminology to learn, however, daily trading will set you on the right track to becoming knowledgeable and clearer in your daily trading decisions. Even when you feel like you cannot learn more about the subject, you will realize that although you have prepared yourself well, markets will remain highly unpredictable. Because of this, traders often find themselves feeling like they never know whether their trades will be successful or a waste of time. This is why shifting your focus onto your trading plan rather than your losses and profits, will help you become consistent, disciplined, and eventually profitable in your trading.

In today’s world, finding authentic and unbiased information online about trading techniques and plans might be a bit of a challenge, however sourcing out other traders like yourself through online forums or groups, is a great way to share and learn through other traders’ experiences.

Be confident enough to walk away.

Working with such an ever-changing environment, which is what trading is all about, can make it easy for you to fall into the trap of constantly sitting at your computer/device monitoring your trades. This can be detrimental both to your trades as well as your general wellbeing. Confidence comes with time and experience, however in the beginning, even though you might not feel confident enough to do so, you need to make yourself believe enough in your trading plan and be able to walk away from your trades, even if this comes at the risk of losing your trades. Even if you do lose out on your trades, remember every loss is a great opportunity to learn and develop your trading strategies.

Use your winnings and losses to become better.

Being successful at trading, especially for a long period, might make it easy for traders to become overly confident. A great way to keep your confidence within the ‘safe zone’ is to analytically reflect on your losses, to learn from those mistakes, but also to analyze your wins. Trading with small amounts that you can afford will help to make your losses feel more like learning curves rather than personal disasters. Some traders go on to say that your losses might be your most fruitful mentors. It is best to keep in mind that in trading, there are no winners without losers, so prepare yourself for many losing trades and learn how to extract the important information from each loss you will inevitably encounter.

Set your rules and follow them.

If you’ve attended trading training or if you’ve done your research online, you’ve heard of strategies, how to identify them, when to apply them and how to manage them once they’ve been applied. Strategies are nothing but a list of rules that help you to recognize and apply your methods for making a trade profitable.

Making your list of rules that accompany the trading strategy you’ve opted for, is a great way to keep yourself focused and motivated for your current and more importantly, your future trading. Many beginner traders, unfortunately, give up after the first few losing trades, however that moment when you feel like this might not be the best for you, is the moment when you learn the most.

Making yourself a clear list of rules, writing them down, and sticking them up where you trade, will make it easier for you to be disciplined. Set up rules such as – When will I trade, how much risk am I going to carry daily/weekly/monthly, what markets am I going to focus on, etc.

Your list of rules will change and develop as you learn more about who you are and where you stand as a trader. Consistency and discipline are the two main ingredients you need to have to help yourself develop the necessary confidence traders need to become successful. Do not expect to make massive profits on your first few trades, because the probability is, you won’t. Learn the basics, make your rules, stick to them, and believe in your choices. Happy trading!

Categories
Forex Psychology

Why Trading Discipline May Not be Enough

Let’s say you are an experienced trader, trading on the Daily timeframe. You are long on the EUR/USD, as per your system signal, you have also set up your Stop Loss. The trade is open, although it is not going your way. It is going lower, fast. You notice the candle extreme pushes down, as […]

Let’s say you are an experienced trader, trading on the Daily timeframe. You are long on the EUR/USD, as per your system signal, you have also set up your Stop Loss. The trade is open, although it is not going your way. It is going lower, fast. You notice the candle extreme pushes down, as […]

Let’s say you are an experienced trader, trading on the Daily timeframe. You are long on the EUR/USD, as per your system signal, you have also set up your Stop Loss. The trade is open, although it is not going your way. It is going lower, fast. You notice the candle extreme pushes down, as someone deliberately wanted to destroy your trade. What do you do now? It is closing in quickly to your Stop Loss level! The time is up! What have you done? There is only one answer that proves you have the discipline – Do Nothing.

You will and should come back to this article as it is human to recognize your discipline is not effective. Psychological discipline in trading is necessary to do things the right way, and the right way is to separate emotions. That’s not easy even after years of professional trading. Discipline is one of the most important things in trading, and you will slip on it, it’s just human nature, at some point, you will get in your way. To train your discipline, you need to create a system of entries and exits, set of criteria, indicators, and follow it, and when you fail, take a step back, and follow your system.

When building a system, testing is important, but setting criteria in a demo is essential. This is important because it will allow you to do good trades in the long term. Of course, the system has to be tried first. How good can you separate your emotions from trading? When making big decisions you need your intellect and strategy and emotions out of the way. Trading with emotions is trading by feel and it will result in loss, always, so to avoid this, set up a sound strategy, logic entries, and exits, let it unwind on a trade.

Now to get into more details. Your system, you are following the rules, yet you still mess things up. You have worked hard on that system, made a long way but the trading results are not good. It is because you stand in front of your system. If your trading rules do not need you to think, to intervene, put on your brain whether you enter a trade or exit, it is a good thing. You think it is easy not to deviate from your system, just do what it says to do? That is where most traders fail without even noticing. Separating logic and emotions is hard. Emotions are the killer of good trading decisions yet every logical approach has a degree of emotion mixed in. You must be at your best when it comes to forex trading, and emotions will be in your way.

The worst and dumb decisions you made had a big part of emotions. If we take a long and not so happy relationship, they are not a good decision when we look at it rationally, but emotions keep it floating, taking a significant part of your life you cannot relive. When you need to decide, take a step back, are you emotional about that trade? If yes, you know what to do – nothing. You already have something that works, if you have backtested and built your system the right way, so let it do what is meant to do. Your emotions or gut feeling about the trade is going to make it worse. Here is what we can do to make emotions detached:

Choose your strategy wisely, because mistakes are easily done, and these are the checkpoints to follow and avoid crashes. We know exactly when to enter and exit a trade. We have found a trade we like and now it is time to pull the trigger.

Do not make corrections, even if the market trends seem to be unfavorable, let the system work. Interventions make a proven system go bad. As much as you want to change something, let the market go. If it is going to trigger that Stop Loss, watch it do it, even better do something else. If you intervene, and you are right, you have just prolonged your misery. There is a 50% chance you get it right, the price will move up or down. You have a justification, you think you are good at this, your feelings work, but, they do not.

The biggest mistake is to look at your trading terminal and your blinky lights. If you made your trades, turn off the terminal, your screen, move away. If you need to lock it and give the key to someone, do it. Creating a barrier will put you in a very good position not to have any possibilities to intervene. If you are trading on the Daily timeframe, this can be easy for you, all you have to do is check your trades at the end of the trading day. Boredom can be your doom too. Therefore, find your favorite place to work out, swim, socialize, play games, whatever you like. The best part of being a daily timeframe trader is you have a lot of free time. Although this can also be a problem for some.

Chasing losses and overtrading go hand in hand. Let’s say you take a few consecutive losses. You start hating that currency pair, you want your money back. Someone has manipulated the price because every time you enter, the trend reverses the other way. Now you have that justice emotion, revenge against these manipulators. This is how the spiral down to your account bottom begins. Some may even think about position size increase, you cannot lose 5 times in a row. Well, you can, EAs sometimes use that tactic to recover the losses of consecutive bad trades. Essentially, it is just increasing potential loss.

Panic or exiting too early. It is very relative to what you do after a trade is executed. You look at the charts and make an emotional decision when you are losing but also whet you are winning. Drawdowns are always happening, you will rarely see a trade go the way you want without a drawdown. Do not close the trade if you do not have the signal for that from your system. Closing too early because you are afraid the trend will reverse and want to keep that what you have is just a limit to your potential profit. Forex will create that emotional build-up in you after a few losses, making you hesitate and get scared. A good analogy to this is with boxing. When you land a good hit, you do not stand and marvel at it, engage even harder! Sometimes you want to cash in and not be greedy, that trade you made is really good. Well, know that putting a cap on your winners is also your doom.

Not giving your system time to make the signal. You might notice the repeating sentences in this article. Repetition, practice is what will make your mind perfect and remember this. You will make the same mistakes with discipline so you must remember to stay away from your system.

Not understanding the long term trading. Forex is not a casino, this is a long term involvement. Traders need to understand bad trades can happen a few times in a row, but after 1000 trades, the sum should be on your side. If you have a bad day, week, month, and even a year, it does not mean you have to dwell and change things. It happens even the other way around, you can have a great period where you make great gains. After a few trades that gain is negated and you are back to break even.

Long term mistakes come in scenarios when you feel invincible after trading well for some time. When you take a hit and see all of your long period of winning is negated, it is emotionally devastating even to experienced traders. Trading is always fluctuating, so ups and downs are normal, stay with the planned course and discipline will help you. Discipline will take you to the top, you have a tested system, stay with it, and realize what matters is the long game.

Now let’s see what can we do about these problems, starting with the zoomed-out perspective. Generally, if you have low discipline in life, you will have difficulties in trading on Forex. Understanding discipline will make you overcome that hazardous jumping mindset. The best way of action is to change bits of yourself. Books come in handy, one particularly good and practical is “Discipline Equals Freedom” by Jocko Willink.
If we zoom-in now we get to another important part. It is time-consuming. Test systems, adjust them until they start working to your set criteria. Prove it works, on a demo account.

There’s no partial discipline. Follow the system, don’t make unnecessary corrections. You are not smarter than the system you created. If the criteria for entry are only ¾ met, then do not trade it. After you are done, do not look at it! Otherwise, emotions will creep in, and the worst option is when you are right to intervene. Know that trying to be more disciplined just by yourself is not going to work. When you realize the mistake, you will say to yourself that you are never going to do this again. But it will happen again, you will not succeed with self-discipline. The best course of action is to come back to this article and read the steps again.

Categories
Forex Psychology

The Road to Become a Pro: Preparation

I see a lot of people approaching the financial markets as a way to get a second income or even be financially independent. The major part of them wants to invest in the financial markets but don’t have the time or interest in mastering the needed skills to really succeed. 

I see a lot of people approaching the financial markets as a way to get a second income or even be financially independent. The major part of them wants to invest in the financial markets but don’t have the time or interest in mastering the needed skills to really succeed. 

I see a lot of people approaching the financial markets as a way to get a second income or even be financially independent. The major part of them wants to invest in the financial markets but don’t have the time or interest in mastering the needed skills to really succeed. 

A minority of them are involved in acquiring those skills but think that to be successful, only the knowledge to forecast the markets is needed, most of them focused on learning one or several technical analysis methods that would allow them to do it.

The cruel reality is that the randomness of the markets is high, and forecasting is not deterministic. Thus, operating in leveraged markets makes the task much more difficult if traders are not aware of the statistical parameters and size limitations of the system in question. Thus, psychology comes into play as traders get confused and unable to act as losses accumulate, greed, and fear driving the decision process instead of the rational mind.

The preparation tasks

Dr. Van K. Tharp states in his Peak Performance Course series that top traders need to master 15 different tasks or processes, twelve related to trading, two preparation tasks, plus “being out of the market” task. The two tasks related to preparation are: 

  • Developing Self-awareness and 
  • Developing a low-risk game plan

Self-Awareness

This task aims to recognize our strengths and flaws, so we can profit from the first ones and overcome the second ones. For instance, if you are good at recognizing breakouts, you could focus on that kind of pattern to create your trading strategy. Another trader might have difficulty with decision making but is good at programming. Thus he could use his skills to develop a mechanical system that makes decisions for him.

Goal Settings to solve the conflict

Dr. Tharp rightfully states that most traders are nor aware of what they want to accomplish. Of course, they want to get the max out of the markets, but that statement says nothing about the right way they should go. Most of the time they have conflictive goals, they want profits but also avoid losses, be safe at the same time they risk capital. Most of the time, unresolved conflict of both primary desires spells catastrophe. The right way to solve personal issues is through goal setting. In the case of profit/risk conflict, traders must set goals for the monthly profits and verify these are congruent with the expected risks (drawdowns), and match both to fit him. Goal setting is part of developing a system that suits you, but to know what suits you, you need to know yourself. It is important to list all your desires and expectations about you and the markets.

Are you a risk-taker or avoid risk? Do you want to work 100 percent of the time looking at monitor screens or just to enter a trade? Do you like to plan in advance, or are you an intuitive trader acting the moment you feel a move?  

Development of a Low-risk Plan

The key to succeeding in the financial markets is not good forecasting, but profiting from low-risk ideas. A lot of traders only focus their attention on entries and forget that the exit is when the profits are realized. Also, since most traders want to avoid losses, they think that a high percentage of winners is the critical element of a sound trading system. Thus these traders end up scalping small profits and holding their substantial losses. Instead, the key to success is the opposite. Traders must create a written plan with a primary element: low-risk trades.

A low-risk idea is one in which the reward is higher than its risk. The property of high reward-to-risk ratios is better shown with an example. Let’s call the risk R and the reward a multiple n of R. It is evident that in a series of n trades, just one needs to be profitable to break-even. Thus, if continually trading using 5:1 RR ideas, only one profitable trade, every five trades is enough to keep us afloat. Therefore, it is in the trader’s interest to chose low-risk trades as protection for a drop in the percentage of winning trades.

Consistency by following your rules

A written plan consisting of a set of rules is essential. You need written rules so you can, later, analyze results and make changes to the rule that needs to be improved. If there are no rules, it is impossible to improve them. 

For instance, let’s suppose there is a stop-loss rule that cut losses at 1.5 ATR(10). Maybe, after some time, you see that there is a substantial portion of trades that reverse after your stop is hit. If your system has such a rule, and you keep a record of your past trades, you could do an analysis and conclude that your system could be optimized by changing the 1.5ATR to 1.8ATR, but that 1.9ART or more harms you in the risk side with no substantial improvement in the number of winning trades. That kind of analysis, obviously, is impossible if your stop-loss strategy is decided on each trade depending on your subjective feelings

Making money demands consistency and discipline. Trading rules are essential to both. To respect the rules is the factor to consistency, and a disciplined mind is required to adhere to the rules. With no rules, trading is a set or random entries and exits with no possible statistical value for future analysis and improvement. In this context, a mistake means not a losing trade, but not following the rules.

Further reading: Peak Performance Course Book 1 – How to use Risk, Van K. Tharp chapter V

Categories
Forex Psychology

Trading Psychology -Are you a Trader?

What defines you as a trader? What is the secret ingredient that makes an ordinary person a trader?

What defines you as a trader? What is the secret ingredient that makes an ordinary person a trader?

What defines you as a trader? What is the secret ingredient that makes an ordinary person a trader?

Dr. Van K. Tharp, in his first Peak Performance, tells the story of Jack, a wannabe trader that, after more than ten years losing money in the markets he discovered a trader who had made consistent profits in the markets for 30 years. This great trader was willing to teach him if he was committed to learning how to trade properly.

Jack told him he wanted to be a trader, and he understood he, the old trader, was willing to teach how to do it.

The trader said, “yes, I’ll teach anyone, but most people are not fit to learn. All I ask is to do what I tell them to. Many people say he will, but most of them don’t even finish his first assignment.”

Jack told him about his failures and his inability to follow supposedly successful systems that somehow it didn’t work for him. Then, he asked the old trader about his secret to success.

“I am a trader,” told Jack.

“I know it, said Jack, but what is the secret?”

“I have told you: I am a Trader. You are a game player. When you’re fully committed to becoming a trader, you’ll understand. Are you really entirely committed to become a trader?”

Commitment

Commitment means a person is focused on and putting all efforts to accomplish a goal. To show you the difference between commitment and lack of it lets us understand the following cases:

  • Case 1 A Trader made a profit in the market but did not follow his strategy rules.
  • Case 2 A trader entered a position with his system but is continually fearing the market will move against him
  • Case 3 A trader has subscribed to a signals service supplied by a successful trader but, somehow, he cannot trust them, so he cherry-pick them.

Contrast these cases with the following ones:

  •  Case 4 A trader made a profit strictly following his trading strategy.
  • Case 5 A trader entered a position not knowing the outcome of the trade, but being sure his system will make him money each month if he followed the rules of the strategy.
  • Case 6 A trader is entering all the trades the signal service provides, because he trusts the service, and records all trades for analysis purposes.

We can clearly see the contrast between cases 1-3 and cases 4-6. In the first case, the trader felt unsure, and we see there was an inner conflict between what he should do and that he felt. In the last cases, the trader was in sync with the method. There was no conflict between theory and practice.

According to Dr. Van K. Tharp, conflict is the result of people being fragmented internally. The different parts that make the personality of a person trying to accomplish particular positive purposes by following certain primary behaviors. Not all of these responses are congruent; thus, they push the person towards different directions. For instance, a role that supports a trade decision might be in conflict with the inner part of the trader that tries to avoid risk.

Obstacles to Success

Traders think that to trade successfully is as simple as knowing when to enter and exit. The issue is, when they realize that having always winning trades is not possible, they find two main obstacles: 

  • Not reaching the profits they wish, or 
  • Try to avoid losses. In fact, both issues are related. 

When a person tries to avoid losses, she holds into the loss hoping it the price will reverse and come to his favor. Then when a small paper profit shows, she closes it at once on fear the price would reverse and become a loss. Finally, she is cutting profits short and let losses run, which is a recipe for disaster.

The truth is in there

The real problem lies inside the trader’s head. People tend to avoid working on themselves, as it’s too uncomfortable, so they shift their problems and blame the market. For example, people seldom record their trades for later analysis. Therefore, they are not sure if the system fails or is himself. Then, they have second thoughts about every trade, so they cherry-pick the trades.

Also, they don’t use predefined targets or stop-loss levels, so they decide to stay or get out of the trade solely based on his inner feelings. Thus, in the end, they succumb to their biases. What’s worse, his system is totally random on entries and exits. Finally, since they do not register their trades, there is no way to know the properties of his system or devise ways to optimize it on entries, take-profits, and stop-loss settings.

The end of it is, the trader will doubt or quit the system after a perfectly normal losing streak because he lacks the information needed to verify if the current performance of the strategy is normal or not.

Winning and losing

Many people that are attracted to the markets by their huge potential profits don’t accept losing. But, the reality is there is no sure system to trade the markets. There is an element of chance or risk; thus, some trades will inevitably be losers, and traders have to accept losing. If a person wants to only win, the markets are not the place to be. To be successful, there is no need to be right all the time. Not even 50% of the time. A scientist may spend five years in the lab doing unsuccessful experiments until the last one pays and discovers something worth all the effort and time. A trader may be successful just one every five trades and be entirely successful. In the trading job, a winning rate and Reward-to-risk ratio combination is the key to success. 

Developing Commitment

According to Dr. Van K. Tharp, developing commitment is a three-step process.

 Step 1

Determine your own obstacles. List them on a document. If you’re not sure about them, keep a diary of your trades, reviewing it every week. Look for the obstacles you are encountering.

Step 2

Analyze every obstacle and try to see what is going on in your mind, what is the common element. Not taking losses? Cherrypicking trades? Taking profits too early? Not keeping your diary properly?. Do some inner research, try to find out what’s inside your head. Doubt, fear, unsure about your strategy?

Step 3

This step has to do with dealing with whatever is inside you that is sabotaging your trades. You must make peace with your obstacles. One way to deal with them, says Dr. Tharp, is to go to the extremes. For instance, if your problem is with losses, imagine taking a huge loss. As you keep doing this exercise, you will find it easier to cut your losses soon.

You should find the parts of your mind that are key to the conflict and negotiate between the parts, to spot behaviors that could fit both parts in conflict.

Further reading: Peak Performance Course Book 1 – How to use Risk, Van K. Tharp

 

Categories
Forex Price-Action Strategies

Price Action Trading: Be Psychologically Strong

Today, we are going to demonstrate an example, which has several lessons. Forex price action traders need to concentrate hard on the trading charts. They must have ‘never give up’ attitude, must not make decisions emotionally. In a word, they need to be psychologically strong. Let us now proceed to our lessons with examples.

Today, we are going to demonstrate an example, which has several lessons. Forex price action traders need to concentrate hard on the trading charts. They must have ‘never give up’ attitude, must not make decisions emotionally. In a word, they need to be psychologically strong. Let us now proceed to our lessons with examples.

Today, we are going to demonstrate an example, which has several lessons. Forex price action traders need to concentrate hard on the trading charts. They must have ‘never give up’ attitude, must not make decisions emotionally. In a word, they need to be psychologically strong. Let us now proceed to our lessons with examples.

This is a daily chart. After being bearish, the chart produces a bullish reversal candle. The combination of the last two candles is called Track Rail. It is a strong bullish reversal pattern. The daily- H4 combination traders may flip over to the H4 chart to go long on the pair.

 

The H4 chart does not look that promising. The price heads towards the North, but the momentum has not been strong. However, the buyers have their first signal to keep an eye on this chart. They are to wait for the price to consolidate and produce a bullish engulfing candle to offer them a long entry.

The price makes a deep consolidation and produces a bullish engulfing candle. However, it closes within a level where the price gets rejection twice. The engulfing candle does not close above the level of resistance, but the next one does. This is not an A+ entry. The buyers may skip taking the entry.

The price continues to go towards the North. Some traders may think an opportunity is missed. Do not forget that we shall only go with A+ trade setups. Here is a question. Look at the last consolidation and the bullish reversal candle. The candle closes well above the level of resistance. However, it is not a deep consolidation. Would you trigger a long entry here? Do not miss the point that it is not a deep consolidation. Thus, this is not an A+ entry either. Let us skip it and concentrate on the next chart.

 

Again, the price heads towards the North. This is where we must not panic and think we keep losing opportunities. It is always better to be safe than sorry. What do you think about the last bearish candle? This seems to be a deep consolidation. If the chart produces a bullish engulfing candle, the buyers may trigger a long entry.

 

The last candle comes out as a bullish engulfing candle closing well above the level of resistance. The price makes a deep consolidation. This is an A + trade setup. We may trigger a long entry right after the last candle closes. Let us proceed to the next chart to find out how the entry goes.

 

The price heads towards the North with good bullish momentum. It gets us more than 1R. At last, our patience has paid off. Do you notice how strong we need to be psychologically? This may seem easy, but it never is when we trade and make a decision in the live market. It is tough to restrain ourselves from taking bad entries. Sometimes they may make a profit and make us upset if we do not take the entry. To be consistent, we must not be upset but wait for the best setup (A+ trade setup) to offer us entry.

Categories
Forex Psychology

Trading Psychology: Learn the Art of Getting Over a Floating Losing Trade

In today’s lesson, we are going to show an example of a trade setup, which tests our psychology and ask us a big question. This situation is something that often happens with traders trading on the major pairs. We try to find out the answer to what we shall do in such a situation.

In today’s lesson, we are going to show an example of a trade setup, which tests our psychology and ask us a big question. This situation is something that often happens with traders trading on the major pairs. We try to find out the answer to what we shall do in such a situation.

In today’s lesson, we are going to show an example of a trade setup, which tests our psychology and ask us a big question. This situation is something that often happens with traders trading on the major pairs. We try to find out the answer to what we shall do in such a situation.

This is a daily chart. The price finds its support after being bearish for a long time. It produces a bullish engulfing pattern followed by another bullish candle. Using the daily-H4 combination, traders shall flip over to the H4 chart to get consolidation and a bullish reversal candle to go long above the last swing high. Let us flip over to the H4 chart.

The H4 chart suggests that the buyers may take control soon. A massive bullish engulfing candle followed by an inside bar bearish candle may attract the buyers to go long upon getting another bullish engulfing candle. The buyers are to keep their eyes on this chart since the chart may produce the signal candle anytime.

It does not produce the signal candle immediately. However, after a while, it produces a bullish engulfing candle closing above the last swing high. This is an A+ trade setup as far as the daily-H4 chart combination trading is concerned. The price makes a deep consolidation and produces the signal candle afterwards. This is what breakout traders love to see. A long entry may be triggered right after the last candle closes. Let us proceed to the next chart to find out what happens afterwards.

This must be painful for the buyers. The trade setup looks very good, but things have not been going as expected. The price comes back within the consolidation zone. This looks ominous for the buyers. Since this is an H4 chart, the buyers have the opportunity to look after their trade. They may ask themselves whether they should keep the entry or close it manually? I let you think about it for a minute.

If your answer is the buyers shall close the trade manually, you may not be right. The reason behind this is, once a trade is floating on a loss, traders shall leave it and let it finds its own way. If it hits the stop loss, let it hit it. Traders are to calculate this risk well before they take entry. If a trade is running on profit but acts unusual or gets sluggish at a significant level of support/resistance, that might be a different case. Although the chart suggests that most probably, the price is going to hit stop loss, the buyers shall hold the entry and concentrate on other pairs. If a trader wants to survive in this market for a long time, he must acquire this skill of getting over on a floating losing entry and concentrating on a new trade setup.

Categories
Forex Course

46. Analyzing the Forex Market: Sentimental Analysis

Introduction

Introduction

Introduction

Have you come across the saying that 95% of the traders lose money in Forex, and only a handful of 5% succeed? As a matter of fact, this statement is entirely true. Though trading in the Forex market is no different from doing business in the real market, most of the Forex traders find it challenging to succeed in trading. This is because, in the real world business, there is hardly any relation between business and emotions, whereas, the Forex market is closely related to human psychology.

Many traders trade based only on fundamental analysis or technical analysis and ignore the existence of the sentiment involved in trading. This is the reason we have the concept of 95% and 5%.

Why is there sentiment entailed in trading?

To answer this particular question, we’ll have to understand the core basics of trading.

Firstly, what is trading? Trading, according to the textbooks, is the process of buying and selling of products. Or in simple terms, it is the process where a seller sells his products to a buyer, or a buyer buys products from a seller.

Now, the point one must note here is that to buy or sell a product, both parties (buyer and seller) are obligatory. Without a buyer, the existence of a seller is useless, and without a seller, the presence of a buyer is pointless.

And this above concept is the answer to the above question. Let us understand how.

There is an end number of traders trading the Forex market. The logic for buying and selling is the same as the real-world market. That is, a trade cannot be completed without the presence of both parties. For example, if you want to buy a currency pair, then you mandatorily need a seller to sell it to you. And if there are no sellers in the market to sell it at your desired price, then your buy order will remain pending (incomplete).

Broadly speaking, traders can be segregated into two types. The first set of traders includes large banks, hedge funds, mutual funds, and big-time investors who move the market. And the second set comprises small retail traders who do not have the capability (enough capital) to drive the market.

How do big players always win?

Big players are the ones who always win in the market. And they make this possible by bringing in emotions in trading. Let us understand this with an example.

Let’s say a currency pair is in an uptrend from a month. At this point in time, what do you think the whole world is thinking? As obvious as it gets, most retail traders are looking at it as a buy. Now, since everyone (big players and retail traders) are looking to buy, there is no seller to sell it to them. This situation, in turn, creates loads of pending orders in the market. So, the masterminds (big players) start to become the sellers in the market to the retail buyers. And this continuous selling by the big players causes the market to drop pretty drastically.

Seeing this drastic fall in the market, all retail traders who were buying get stopped out, and the rest begin to look it as a sell. And once the retail traders start to sell, the big players buy it from these sellers (retail traders). Hence, from this, the market again starts to head north. This is how big players bring in emotion in the minds of the public, manipulate them in the market.

Finally, we can conclude by saying psychology plays a major rule when it comes to trading in the Forex market. And the sentimental analysis is all about learning more about psychological trading. So in our further lessons, we will be discussing a lot more on these topics.

[wp_quiz id=”57167″]
Categories
Forex Videos

Forex Trading Psychology Part 3 – Winner’s Have To Learn To Lose

https://youtu.be/1einwnNxdrM

https://youtu.be/1einwnNxdrM

Get your head straight Session Three


In sessions one and two, we talked about the importance of having a quiet working environment, at least two 15 inch or larger computer screens, and keeping up to date with economic data releases. And also to be realistic and not expect every trade to be a winner.
The one area of trading that hardly any new trader takes into consideration is the emotional roller coaster that the stresses of trading can cause a person to go through. When it comes to trading with real hard cash, winning trades can be quite euphoric, especially when a trader starts to see consistent winning trades ramping up their profit and loss. However, losing trades, or going into a drawdown, can cause a lot of stress and anxiety during trading. When traders let losing trades run overnight, it can cause sleepless nights. We all know that our performance will suffer when we do not sleep properly. A lack of sleep can cause poor judgment when it comes to trading.


And so when it comes to trading, people must ask themselves in the first instance; am I the type of person who can handle being on an emotional roller coaster? There is nothing quite like trading when it goes your way and where you are making money consistently. But when it goes wrong, the stress piles on and causes you to make more and more mistakes. You might have a natural inclination to double up when suffering losing trades because most people will chase losses. This is a fairly natural phenomenon, but it is gambling and not trading.
Professional traders set stop losses, so they will know what their losses are going to be on every trade and do not let losses run on and on, they only do that with their winning trades.
Losses can cause traders to feel frustrated and angry, and quite often, they may feel that they want to do nothing and hope that a bad will position will come back online. This is called burying your head in the sand and not facing the consequences of your actions.
The absolute best way to mitigate these issues, in order to keep your emotions in check, is to invest your time in Forex education. Because the more you know about this market, the less likely you are to make mistakes. Here at Forex.Academy, we have all the educational modules you will need, and they are freely available at your disposal.

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Forex Videos

Forex Trading Psychology Part 2 – Winner’s Have To Learn To Lose

https://youtu.be/0ZOUpTZl-cE

https://youtu.be/0ZOUpTZl-cE

Trading Psychology – Get your head straight – Session Two

In session one, we discussed the importance of having a quiet working environment with as few as possible distractions, and at least two 15-inch or larger computer screens to help you assimilate all the information from your charting. And of course, to be up to speed when it comes to economic data releases and to understand how these might impact your trading. All of which are critical components of trading psychology.
OK, so you have planned your time, banished friends, family, kids, and other distractions from your work area. Now what? Well, another area where new Traders typically fall down he’s being unrealistic when it comes to trading losses — everybody loses trades at some point. But in forex trading, you really should be taking a long-term view. The best traders work to averages, they look for more wins than losses, and where any losses are contained by sensible stop losses, and where winning trades will typically run on for at least two times greater than any losses would be allowed to run for.


One of the biggest areas where new traders fall down is by not applying sensible stop losses, and then getting closed out by their broker due to a margin call. Or traders will simply throw the towel in when they have gone through the pain barrier, and then immediately double the size of subsequent trades in order to chase their losses in order to try and make money back. This is typically how gamblers operate, and of course, when it comes to gambling, the house generally always wins.


Some of the best traits of professional traders are the consistency of trading methodology while looking at the long game and not the short game, and being disciplined. When discipline fails – which is largely down to stress – then trading breaks down and fails too.
Another area where traders fail is due to greed, where they hang on to winning trades for too long, and try and squeeze every last pip out of their trade, which often leads to price action reversals and where trades move against them. This often results in traders going from a position of profit, to then running the position into negative territory, simply because they would not take a profit when they had it, because they wanted more. Professional traders know when to get out of a trade and do not let winning trades go into negative territory, even if they need to exit the trade with a small profit. They simply wait for the next trade setup up and go again.
Here at Forex.Academy, we have a full suite of educational tools to help you to become a professional currency trader, and they are all freely available on our website!

Categories
Forex Videos

Forex Trading Psychology Part 1- Winner’s Have To Learn To Lose

https://youtu.be/WwZJSl_sNFU

https://youtu.be/WwZJSl_sNFU

Trading Psychology – Get your head straight – Session Two

In session one, we discussed the importance of having a quiet working environment with as few as possible distractions, and at least two 15-inch or larger computer screens to help you assimilate all the information from your charting. And, of course, to be up to speed when it comes to economic data releases and to understand how these might impact your trading. All of which are critical components of trading psychology.
OK, so you have planned your time, banished friends, family, kids, and other distractions from your work area. Now what? Well, another area where new Traders typically fall down he’s being unrealistic when it comes to trading losses. Everybody loses trades at some point. But in forex trading, you really should be taking a long-term view. The best traders work to averages, they look for more wins than losses, and where any losses are contained by sensible stop losses, and where winning trades will typically run on for at least two times greater than any losses would be allowed to run for.


One of the biggest areas where new traders fall down is by not applying sensible stop losses, and then getting closed out by their broker due to a margin call. Or traders will simply throw the towel in when they have gone through the pain barrier, and then immediately double the size of subsequent trades in order to chase their losses in order to try and make money back. This is typically how gamblers operate, and of course, when it comes to gambling, the house generally always wins. Some of the best traits of a professional trader is the consistency of trading methodology while looking at the long game and not the short game, and being disciplined. When discipline fails – which is largely down to stress – then trading breaks down and fails too.


Another area where traders fail is due to greed, where they hang on to winning trades for too long, and try and squeeze every last pip out of their trade, which often leads to price action reversals and where trades are moving against them. This often results in traders going from a position of profit, to then running the position into negative territory, simply because they would not take a profit when they had it, because they wanted more. Professional traders know when to get out of a trade and do not let winning trades go into negative territory, even if they need to exit the trade with a small profit. They simply wait for the next trade setup up and go again.

Here at Forex.Academy, we have a full suite of educational tools to help you to become a professional currency trader, and they are all freely available on our website!

Categories
Forex Psychology

Having the Mindset to Deal with a Frustrating Situation

Patience is one of the most essential components of Forex traders. Traders are to keep patience in every single second. Before triggering an entry, a trader is to find out

Patience is one of the most essential components of Forex traders. Traders are to keep patience in every single second. Before triggering an entry, a trader is to find out

Patience is one of the most essential components of Forex traders. Traders are to keep patience in every single second. Before triggering an entry, a trader is to find out a trend, key levels, momentum, news events, etc. After all this hard work, he may not be able to take the entry. It is frustrating, but for Forex traders, it is a usual thing. A trader must accept it simply. In today’s lesson, we are going to demonstrate an example of that.

The price heads towards the South; it consolidates and heads towards the North. The price breaches a level of resistance, which the buyers are to keep an eye at for a bullish reversal. Let us proceed to find out how the next chart looks.

The buyers were waiting for the red-marked level to hold the price and produce a bullish reversal. If the level had held the price and pushed the price towards the North breaching the highest high, the buyers would have taken a long entry. They must have waited eagerly, but all went in vain.

The price headed towards the South further and found its support. After finding the support, it heads towards the North again. On its way, it makes a breakout at the highest high of the last bearish wave. The buyers are to keep an eye on this pair again to find a long entry. To take the long entry, the price is to come back at the breakout level, to produce a bullish reversal candle, and to breach the highest high of the last wave.

This time it looks good. A candle closes within the level of support. The buyers are to keep an eye to get a bullish reversal candle first. This means they have to be patient again. Let us proceed to find out what happens next.

The level produced a bullish reversal candle, but it did not breach the highest high. It instead came down and breached the support level. In a word, all efforts have gone in vain. What wastage of time!

                   The Bottom Line

If you want to take trading seriously as a business or a consistent source of income, you must not think that it is a wastage of your time. It is an investment. Traders must be patient and not be frustrated when opportunities are lost or do not come as per expectation. They must deal with it professionally.

The bad thing is it does not come with practice or experience. The good thing is it is all about mindset. Even a beginner may have a mindset to deal with a situation like this, whereas it might frustrate a trader with five years of experience. We must remember that if it frustrates too much, it hurts trading performance.

 

Categories
Forex Videos

Forex Trading Psychology – The Key To Success Or Failure

https://youtu.be/gWnUFmsTyNQ

Trading psychology
You’ve probably heard of the old adage: if you don’t like the heat, stay out of the kitchen. Well, Forex trading is a regular burning cauldron

https://youtu.be/gWnUFmsTyNQ

Trading psychology
You’ve probably heard of the old adage: if you don’t like the heat, stay out of the kitchen. Well, Forex trading is a regular burning cauldron


Trading psychology

You’ve probably heard of the old adage: if you don’t like the heat, stay out of the kitchen. Well, Forex trading is a regular burning cauldron of fire and is certainly not for the faint-hearted.

One of the key areas that new Traders fail to take into consideration when starting out on the forex trading journey is the art of controlling their emotions. To be a successful Trader, you need to have a clear head at all times. You need to be making informed decisions, that are based on the economic market fundamentals and your technical charts, and not making rash decisions, such as trading to make up losses on previous trades, or trying to trade while your mind is otherwise engaged in other activities or trading on a whim. Ideally, traders need to be working in a quiet environment, without being impacted by external forces, such as family members, friends, TV, loud music, or other such distractions. All of these will affect your concentration and cause stress.


Trading is going to take all of your concentration because a lack of it will no doubt leave you making incorrect trading decisions, and, therefore, you will be losing more trades than you win. New forex Traders typically fund their accounts and begin trading without learning about how the forex market works. They will often have a minimum of education in this area and will often not fully understand about margin requirements, leverage, the implementation of stop losses, and, therefore, the inheritance risk that is associated with trading the financial markets. This lack of knowledge will greatly affect stress levels and whereby the overall psychology factors of trading are not taken into account.


The biggest area that is going to affect your state of mind when trading is the fear of loss. Taking losses on the chin is a prerequisite of trading psychology. Let the losers go, do not be influenced by losses when deciding on your next trade, and do not double up in order to chase losses. Just accept losing trades as a part of trading. You are not going to win every single trade, no matter how good you are. And one of the best tools that you will have in your armory in order to beat fear, is to use a stop loss on every trade. And the other important factors are to keep leverage at a reasonable level, and reduce losing trades to a small percentage of the account equity, so that should you have a few consecutive losing trades, you will still have available funds to allow you to keep trading. Most professional traders limit losing trades to 2 to 5 percent of their account balance. All of this is the only way you will know where your downside risk is, and implementing these tools will help to reduce the stress of trading.

Professional traders look for a minimum of a 2 to 1 win-to-loss ratio percentage on a deal by deal basis. That is to say, you should expect to lose, let’s say $100, with an expectation of winning $300. And with more wins than losses. And this should be at the back of a trader’s mind at all times. Trading is not a race. It’s a marathon. And it is most certainly not a get rich scheme.

And so when you think about it, psychology, or your state of mind, and particularly when trading, if controlled, will become an invaluable asset. Trading Forex is therefore not just about understanding how this market works, it’s not only taking into consideration the fundamentals when choosing to trade a particular currency pair, and it doesn’t matter how well your technical indicators are set up, if you do not have the right mindset, you are set up to fail.

Another way to help with the psychology of trading is education. Here at Forex.Academy, we supply all the education you will require in order to help you with your Forex trading journey. Therefore, soak up as much education as you can and learn what the market drivers are. Study your charts and identify why your losers happened. This will help you with your subsequent trading activity. And, if you are a novice, make sure you only trade on a demo account. Because, if you can’t be successful there, you will not be successful with a real money account.