Psychology in Forex

Psychology in Forex

There are many features and abilities that require traders in order to be successful in the financial markets. The ability to understand the fundamentals that move the markets, determine the direction of the current trend, read price charts and detect patterns that offer opportunities to enter the market, are just a few of the traits you need all trader. However, none of these is as important as the ability to control emotions and maintain discipline.

In the trading psychology

The psychological aspect in trading is tremendously important and the reason is quite simple: A trader enters and leaves the market constantly and you need to make quick decisions in a short time. To achieve this, you need to have a certain presence of mind. In addition, must have discipline, in such a way to follow to the letter your trading plan which in the long run, is the difference between being profitable or finish without a penny in the account. Emotions have simply no place in the trading, and operator that manages to get rid of them to operate in the market has the assured way.

The understanding of the fear

When a trader sees that its operations are in red numbers and bad news will be known shortly that may affect the market negatively for it, it is not uncommon to begin to feel fear and to be dominated by this as negative emotion. When this happens, the trader can react and be tempted to liquidate all their positions or refrain from entering the market and take more risks. If you do this, you can perhaps avoid certain losses but also Miss good opportunities and profits that these entail.

Operators must understand the fear by what is a natural reaction to what we perceive as a threat (in this case a threat to their capital and the profit). Quantify the fear can help. Or perhaps better to combat the fear by analyzing what is not causing fear and why we are fearful, i.e. where and why.

Likewise, if a trader before entering the market, which is causing him to fear and anxiety and prevents to take good decisions, you can combat those feelings better and learn to avoid them when you are operating in the market. Also can isolate and identify those negative feelings during the sessions of the market in such way that can focus on what the market is doing and not on what you're feeling. Of course that this is not simple and need practical, but is necessary for the peace of mind of the trader and is clear for their investment capital. 

Greed: our worst enemy 

There is an old adage on Wall Street: the pigs end up at the slaughterhouse. Greed drives many traders to maintain their winning positions for too long trying to get the most juice possible operations. This behavior can be very destructive to our account since the trader is exposed to the risk of losing a large percentage of the profit e even a winning position stops becoming a loser just for being too greedy.

Greed is not easy to overcome. This is due to that within us there is an instinct that makes us try to always be better and a little more. The trader must learn to recognize this instinct when it occurs and develop trading plans based reasonable criteria and not on the emotion that you feel when you win or lose a certain amount. We must remember that trading is one business like any other and we handle it that way.

The importance of having a trading plan 

To have their minds where they should be before being dominated by destructive emotions, the investor must devote the necessary time to create trading rules before entering the market. For this purpose operators can set limits that can serve as guidelines based on its relationship risk/reward that normally used in their operations. By means of these limits, the trader can set when closing a winning or losing position regardless of emotions.

Of course that set price limits for closing a position cannot be the only rule. For example, a trader can set shortly before important economic announcements that will close all their positions to avoid the volatility that the market under those conditions.

Another limit that can impose a trader refers to the amount that can win or lose in one day and the maximum number of operations that will be per session. In other words, if you win or lose a specific amount, close the platform and terminates the session for that day.

Conclusions

While it is very important to be able to read a price chart and use the best platform for the execution of the operations, the key factor for success in the financial markets is the psychological component which must never be underestimated. Also requires a proper trading plan and sufficient discipline to follow it to the letter.