What You Should Know About Trading Psychology

Because trading is all about numbers, and the way they go up and down, anyone who has not tried it probably has the impression that it is the sort of hobby or career that needs a calculator brain. As most people would not claim to have this facility, they might believe that they could not succeed at trading.

Once you have tried it, you rapidly come to realize that trading is much more emotional than that. It is your feelings and fears that limit your success, much more than any digits you may be watching. Thus, trading psychology is a crucial topic for anyone who wants to win on the Forex markets.

You may have waited for "the stars to align", the perfect setup for what should be a profitable trade. Many times this would be sufficient, even though a winning trade introduces its own mental problems. But sometimes the charts will totally let you down, and in many ways that is the hardest part of trading to deal with.

After all, it was a trade where everything was right and you followed your trading strategy. How on earth did you get it so wrong? Stop there. While it is totally natural, that is just the wrong question that you should be asking yourself.

The real world does not prepare you for the mental anguish of trading. In the real world you would want to know what you had done wrong, and try and avoid that mistake in the future. When you start trading, you cannot help bringing the same attitudes to the table. You need to learn a new way of thinking to cope with the markets.

Back to the question. If everything was right and you followed your trading strategy, you did not get it wrong. You need to congratulate yourself on keeping your focus and following through, rather than allowing circumstances to distract you from your trading plan. You do not control the markets, and neither do all the indicators that you choose to refer to.

The point is that the markets will do what they do, and you are simply trying to identify probabilities when you place your trades. Probabilities dictate that you will have some winning trades and some losing trades, and there is no way that you can know for sure in advance which will be which. Therefore you need to take all the trades that your trading plan requires, and accept each individual outcome.

If you have tested your strategy before using it with real money, then you know that on balance you will profit by applying it consistently. You must rely on that knowledge and not allow any results to make you change it "on-the-fly". This is truly one of the hardest lessons to ingest, but necessary for your long-term performance.

This is not to say that trading strategies cannot be improved. Certainly, you can review your plan in the cold light of day, and apply tweaks to it if it seems appropriate. However, if you choose to fly by the seat of your pants, altering your trading plan while in the heat of the moment, it is likely that your trading career will be foreshortened.

at 6:17 PM
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