Psychology in Forex Trading

The arena of trading can be an overwhelming place. Full of opportunities to buy and sell as well as taking risks. This is where psychology comes in, the risking part and we go through it no matter how long we trade.

First of all fear overall is a weakness, we all have it when money is on the line and it is very predictable. It is easy to see on the charts when a trader is fearful and it is also easy to see when a trader is confident. This is how i assess the charts as well and i reckon it is how we all should assess it.

Charts in a sense are a pattern of psychology and by tuning into that we can make lots of money..

psychology in trading

Above – Negative psychology can hinder a trader and make them feel like it is impossible to trade.

A Few Questions About Yourself

Have you closed a trade in profit that was trending well to find that it kept rising for hundreds and hundreds of pips? Fear makes us want to close a trade early and that is the main reason currency pairs retrace in trends.

Have you felt so scared of losing money on a position that you close it at a big loss and then all of a sudden the market turns around.. Now ask yourself why did the market turn around? That is because many people were like you and closed that position thus forcing the pair to turn. You are following the herd of fear in a way.

Have you felt so much fear when trading that you ignore really good trades and only open bad trades? This is fear also, the mind can make us form patterns that actually are the wrong assessment.

Are you taking profits too early and extending the stop loss too much on bad trades? This is a common issue and is caused by the psychology of fear as well.

Above Video – Using Psychology in Forex to Make Money

Now let’s look at what is happening here. This is all weaknesses you have and is no way an assessment of the market. It is time to assess the market in a different way. What about this. Imagine you lost half your trades in your head, then imagine that good half of trades you did not lose were way more in profit than your bad trades. This helps with psychology, try to see the market like a gain business, not so much like a 100% win business. By believing you can win all trades you are actually losing more and more money from your trading. By excepting half losses those bad trades seem like nothing. Below is an example of four trades and two losses.

  • Trade one 100 pips
  • Trade two 150 pips
  • Trade three – 55 pips
  • Trade four – 75 pips

That is two losses on four trades, are you still a good trader, well hell yeah, that is what a lot of professional traders go for, i am not kidding, they except that nearly half there trades will be losses as they know the winning trades are way more in number.

Be a Loser and a Winner!

That assessment above is 120 pips profit. And is therefore a good gain. So how do i come up with these numbers? It is really easy actually. When you trade, only take trade opportunities that provide at least two to one risk reward. Three being even better. Then when you get to these targets on these trades, just lock in profits and ride it further allowing you the potential to maybe making even more.

It is not uncommon for a currency to go 100 to 200 pips one way before retreating especially with currency pairs like the Euro so when you get on the right side just keep adjusting your stop locking in more profits rather than looking for an exact profit target. Always know where your resistance or support areas are, but allow the market to decide what you should do when it gets there.

By assessing the market in this way you allow yourself more control, heck i know good successful traders, that lose more trades than there successful trades and they still bank big money because they know risk reward is in there favor enough to keep there account growing.

Losing is Okay..

So overall, that is main problem when it comes to the psychology trading is that it does not matter if you lose some of your trades. Do not be in fear, no one is judging you. Except this and your trading should really improve overall.

Tip of the Day.

One more tip i wanted to share is this, when you see a trade that looks good but your gut is saying no because of fear then sometimes an easy trick to overcome this is to risk less, not in a pips sense though, in a units sense. Halve your units amount or even trade a third. That you are still taking the trade with less fear of putting big amounts on the line.  One example of this is occasionally doing less than 1000 unit trades, try 300 units until you feel more confident again. 300 units is only 3 cents per pip so not such a big deal if you lose or have a bigger stop loss.

Then build your confidence up and in time gradually increase your units up again.

About Timon Weller

Timon Weller is the professional Writer and Trader behind the blog Forex Reviews. Timon Weller is also a professional Teacher of Price Action Trading and creator of the popular Training Series teaching people how to trade Price Action effectively called The Engulfing Trader. For other Forex Training available here at Forex Reviews click here.

For more on Timon Weller Click Here. To Learn more about How to Trade the Market and get updates Click Here.

Speak Your Mind