Forex psychology

Forex psychology

A trading psychology, based upon how well you know yourself and are able to profit from your strong points, as well as control you weak ones, has a lot to do with how successful of a trader you will be. When you truly know yourself, then you are aware of how you are going to react under certain circumstances and you can protect yourself from self-damaging actions or decisions when it comes to managing a trade.
The overlap between trading and psychology is complex. Psychological factors, such as performance anxiety, can interfere with clear-headed decision-making about markets. Similarly, poor trading practices - such as taking on too much risk with excessive size - can magnify the normal stresses of the marketplace. Sometimes it is difficult to separate chicken and egg. Many traders put their money at risk without a demonstrable edge. It is difficult to imagine such trading *not* generating frustration over time. Other traders ground themselves in solid methods, but these may not fit their talents, skills, or personalities. A very short-term, aggressive method of scalping markets, for instance, may work fine on paper, but prove completely unworkable - and stressful - for a highly analytical, risk-averse trader.
Sometimes, however, trading psychology problems have nothing to do with trading. They are the results of pre-existing problems that will not be solved by different trading methods. Nor will they go away with simple coaching advice to control emotions and build discipline.
Your biggest enemy when trading is YOU. It's not the market, or the market makers, or world events. It's You! If you do not have a professional psychology then you will make the wrong decisions and lose money on a consistent basis. Here are the keywords, and concepts that you need for developing a professional trading psychology:
Trading psychology's rules:
Trade with a DISCIPLINED Plan: The problem with many traders is that they take shopping more seriously than trading. The average shopper would not spend $400 without serious research and examination of the product he is about to purchase, yet the average trader would make a trade that could easily cost him $400 based on little more than a "feeling" or "hunch." The plan must include stop and limit levels for the trade, as your analysis should encompass the expected downside as well as the expected upside.
Examine all of the facts carefully before you make a trade. Don't let excitement, fear, or someone else's influence cause you to enter or exit a position before the circumstances match YOUR guidelines.
What goes up must come down and what goes down should eventually come back up. A good trader understands that there are times when it's better to be in an all cash position and watching the market from the sidelines.
Don't let temporary circumstances erode your convictions. You know that you should take steps to protect your profits when a trend is weakening, so do it. Likewise, you know what to do when the stock resumes trading up, so do that to.
Don't fall in love (or hate) with your stocks. The stocks don't care that you own them, and they are not your friends. Your only friend is your trading psychology. Pay attention to the technical aspects and do the right thing based upon your own system. Do not marry your trades: The reason trading with a plan is the #1 tip is because most objective analysis is done before the trade is executed. Once a trader is in a position he/she tends to analyze the market differently in the "hopes" that the market will move in a favorable direction rather than objectively looking at the changing factors that may have turned against your original analysis. Traders with a losing position tend to marry their position, which causes them to disregard the fact that all signs point towards continued losses.
Remain emotionally detached from the market and the excitement that its movement creates. Don't constantly check your share prices all day long (unless you're day trading). If you get caught up in "tick" watching then you are going to make wrong decisions based upon greed or panic. There is no valid psychology that includes greed or panic.
Unless you are a day or swing trader, the day-to-day prices of your stock are not that important. Stay focused on the large trends and do not try to react to every market move.
Unexpected things, both good and bad. Understand these events, be prepared for them, and take the appropriate actions. A good psychology takes into consideration that you can not predict what is going to happen in the market.
Unless you're trading in short positions, only increase your position when prices goes up, not down. Generally, when a price starts to move it usually continues in that direction for a while.