Tag: Trade Psychology

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Crypto Forex Psychology

The Impact of Psychology On Cryptocurrency Trading

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

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

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

Psychology of Operation

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

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

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

Psychological Strategy

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

Some considerations about how to make money with cryptocurrencies:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

What are the right tools to achieve these automatisms?

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

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

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

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

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

G: You go in compulsively?

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

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

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

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

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

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

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

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

G: How does that make you feel?

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

G: Some kind of challenge?

And, Yeah, something like that.

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

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

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

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

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

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

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

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

And, No, I haven’t seen her.

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

And, He took revenge on them, I suppose.

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

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

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

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

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

Our proposal is a multi-level work:

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

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

Categories
Forex Psychology

What is the Most Dangerous Trading Emotion?

Trading psychology is a broad topic that focuses on the ways that emotions like fear, anxiety, anger, etc. can cause us to make altered trading decisions that typically result in a loss of money. For example, a fearful trader might enter trades too late or not at all, while an angry trader might take revenge […]

Trading psychology is a broad topic that focuses on the ways that emotions like fear, anxiety, anger, etc. can cause us to make altered trading decisions that typically result in a loss of money. For example, a fearful trader might enter trades too late or not at all, while an angry trader might take revenge […]

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

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

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

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

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

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

Categories
Forex Psychology

Avoiding Burnout While Trading Forex

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

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

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

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

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

Spot the Signs Early

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

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

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

Take a Break

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

Think Back to the Start

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

Find a Friend

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

Get Pampered

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

Ask for Help

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

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

Categories
Forex Psychology

Losses When Trading Are Not Personal

Let’s get this out of the way straight away, the markets do not care about you, when you take a loss, they are not doing anything against you, in fact, they do not even know that you exist. When you take the loss personally, it is only putting the rest of your balance, money and […]

Let’s get this out of the way straight away, the markets do not care about you, when you take a loss, they are not doing anything against you, in fact, they do not even know that you exist. When you take the loss personally, it is only putting the rest of your balance, money and […]

Let’s get this out of the way straight away, the markets do not care about you, when you take a loss, they are not doing anything against you, in fact, they do not even know that you exist. When you take the loss personally, it is only putting the rest of your balance, money and psychological well being at risk of collapsing.

It sounds a little extreme to call it a psychological collapse right? Well, the fact of the matter is that that is exactly what it is. When you take a loss and then take it personally, you are going to want to do whatever you can to get it back and to get even, but you are doing this against something that doesn’t even know you are there. If this was a football match, the opposition scored, it is perfectly normal and fine to want to get even, in fact, that would be the entire aim for the rest of the match until you do. However, for trading, this is not the case, if you make a loss, your main aim is not to simply win that money back. It is to continue with your current strategy and not to let that loss get the better of you.

You need to be able to separate the feeling of a loss and the fact that someone did it against you with the idea that it is simply part of your strategy. Losses should have been built into it and so they should not be taken personally, as soon as you look at it in a way that the markets purposely hurt you, things will only begin to go downhill.

Trading can be hard and you will make losses, a lot of them, there are no traders that do not make losses, what is important is that you do not see them as a failure, they are not personal failures and you should not treat them like they are. A single loss means very little in the long run, by following your trading plan you will be able to make back the money lost very quickly. These feelings of things being personal only really come from a loss when you win, the strategy is working and that is it, but when you lose, you must have done something wrong, which is a long way from the truth. You will feel frustrated, you will feel like it was your fault and that can lead to some very bad decisions on your next few trades, decisions that could potentially put the rest of you account in danger.

Some that knee jerk reaction is always the wrong one, but what should you be doing? Your reaction to a loss should simply be that you want to find out why it lost, there is often a logical explanation (although at times the market can be a little crazy). Review what happened, find what went wrong so you can try to avoid it in the future. As soon as you make rash decisions you will make further losses, then more and more until you are done, analyse and look at things calmly and you will be able to work out and avoid similar losses, of course, that is often easier said than done when you have just lost some of your money.

When you experience your first loss it can be hard when you experience your first consecutive loose sit can be even harder, but you need to be able to look at them as learning experiences. Someone who has the experience of losses will be able to look back at what they die after the losses, was their ration right and do they resolve anything, looking back and using past experiences can allow you to better overcome any future ones. Did you manage to recover? The fact that you are still trading tells us and you that you did, so you will be able to again. Use past experiences to help you get over current ones.

We have mentioned how regular losses will be, everything one should be helping you to improve the way that you are able to cope with them, making it easier for you to get past them. Again, losses will happen, it is important that you are able to deal with them without letting your emotions and feelings get the better of you.

If things are getting a little tense, take a step back, move away from the markets in order to clear your mind. Come back with a clear head and then do not just start trading again, instead look back to the loss and try and work out why it happened, with a clear mind you will be able to look at it without feeling that it was personal and so it will be easier for you to work out how you can deal with it in the future and how to avoid getting caught up emotionally in the losses.

Remember, the markets are not there to hurt you, they are not there to take your money, there will be wins and there will be losses, working out how to deal with the losses is a vital part of trading, just remember that the markets are not targeting you and your losses are not personal, they are just part of what trading really is.

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Forex Psychology

Forex Trading Psychology 101

A lot of trading comes down to your mind, you can have the perfect trade setup, but if you are not in the right frame of mind then you can still get it wrong. There are a lot of different psychological pulls when trading including stress, anxiety, excitement, and overconfidence. Some are good and some […]

A lot of trading comes down to your mind, you can have the perfect trade setup, but if you are not in the right frame of mind then you can still get it wrong. There are a lot of different psychological pulls when trading including stress, anxiety, excitement, and overconfidence. Some are good and some […]

A lot of trading comes down to your mind, you can have the perfect trade setup, but if you are not in the right frame of mind then you can still get it wrong. There are a lot of different psychological pulls when trading including stress, anxiety, excitement, and overconfidence. Some are good and some are not so good for you. There are hundreds of different things that we could talk about when it comes to psychology, too many for us to list in just one article, so we are going to be looking at some of the more prevalent psychological issues that could arise as well as different ways that you can mentally prepare yourself for the hardships and ecstasy that is trading and forex.

Taking the Trade

It is fantastic that you are using a number of different aspects and elements of the markets to analyse your trades, the problem is that there are hundreds and thousands of different things that you could be looking at. As soon as you start to look at too many, the trade may well have gone, sometimes you need to look at a few and then take the trade. The more that you look at the more time it will take and also there will be a much higher chance that you could start to question your initial thoughts, resulting in no trade being put on at all.

You can never look at everything and you can never prepare for all potential outcomes. As long as you have done your basics and you have some of your rules in place that you are following then the trade should be good to go. Do not fall into the habit of over-analyzing everything before you do it and even over analysing it once it is on, this can result in not trades and also the closing of trades early which is generally something that you want to avoid doing as much as you can. Do not be afraid to skip a trade or two if things don’t seem right, but if they do, do not then go out there looking for things that could be wrong, just take the trade.

Not Every Trade Must Be Perfect

This kind of goes against a lot of the advice that is often given out, in fact, we have done some articles which say differently to what we are about to say, but not every trade needs to be perfect. If you are always looking for the perfect trade then you will be putting on very few trades if any at all. A perfect trade will potentially only last a few minutes, the markets will be constantly changing and you will need to adapt with it, part of doing that will be taking trades that are not 100% perfect, it may have been at one point but not anymore, this does not mean that you do not need to take it at all, you can still take the trade and it can still be a good one.

Remember that a lot of your job is to simply manage risk, there is no way to completely remove it, this sometimes involves making trades that do not fit your strategy completely, but with proper risk management, they can still be successful and profitable trades. Do not be afraid to revisit some of the trade ideas that you made or that you have had in your head, you can always alter the take profit and stop loss levels, doing so allows you to take not so perfect trades but then make them good.

Avoid Biases

There is such a thing known as recency bias and it is one of the most common problems that traders come across. To put it simply, this is basically where traders will place a lot more weight on recent events, so making them seem more important than they actually are. They then allow these beliefs to have an effect on the future trades that they are making. This can have quite severe effects on trading, a bad trade can make you not want to place any more trades due to fear of another loss, while a win can cause someone to become overconfident which can lead to bad trades being made due to the idea that they are great at trading and that their opinion is most likely correct.

If we look at an example, Bob has a perfect trade setup but he hesitated at making the trade because his last trade with the same pair an hour ago lost. This is sitting in the back of his mind and this delay in putting the trade on has meant that the opportunity has passed and the trade is no longer valid. It can be hard to take recent results out of your mind, but it is important that you are able to treat each trade as an individual and not as part of a sequence.

Don’t Panic Over Stats

People often seem to focus on the stats which indicate the past results of a trade, while they can give some fantastic insight into your trading and your habits, they do not and should not indicate what you believe the results will be like in the future. Do not get us wrong, you should be keeping track of these stars and should certainly be recording them, however, do not rely on them and do not focus on them when you are looking for your next trades. Use them as an analysis tool when you have a bit of downtime, not when you are actively trading, it will only influence your trades which is not something that you want to do. So your stats and past results can be useful but do not use them to guide your future and current trades.

Allow for Market Volatility

You can set up your trades perfectly but then as soon as things jump about, the markets are unpredictable and so you need to take account of any potential volatility that could arise. Certain current pairs and instruments are a lot more volatile than others and so you may need to make wider stop losses for those pairs. If you keep things completely rigid and have no room for adapting then things can go wrong. Ensure that you take these potential volatility spikes into account with your trades and this will help to reduce the risk of trades being stopped out too soon and also helps you to be more relaxed with your trading.

So those are some of the basic psychological aspects of trading that you should keep in mind when trading. There Are of course a lot more, and we mean a lot more things to do with psychology, but the majority of them have probably been told to you a hundred times already, so we tried to look at some of the slightly less frequently mentioned ones. Either way, keeping yourself flexible and eager to always learn will set you off on the right foot for becoming a successful and profitable trader.