It is well known that in the world the majority of forex traders fail. It is less known, however, what is the main reason behind such a failure rate which is not directly related to the market itself.
Contrary to popular belief this is not necessarily a lack of analysis or strategy, inadequate education or a lack of learning, but gaps in the emotional control and the ability to remain calm are they are the main causes of many failures and black stories of forex trading.
It is easy however to blame brokers that they do not control risks and they lack a professional attitude. The fact is that the majority of these companies are highly monitored by competent authorities, which show that the problem lies elsewhere.
Experienced traders around me all recognize that most novice traders' difficulty lies in knowing how to differentiate what is actually happening in the market with what we really perceive and how we interpret these conditions. Excessive emotional reactions are the worst enemy traders in the forex market.
It is also interesting to observe that the key great riches of this world and outstanding achievements in the world of trading are often the result of actions taken by cool and calm individuals. Many of us seek the keys to wealth through the creation of computer programs or magic strategy and signals of all sorts. In short, our brain is constantly looking for quick and easy solutions instead, often focusing on how to accomplish the best possible way, calmly and well calculated manner.
However, especially in the case of transactions based on technical analysis (indicators, charts, formulas etc), capital management and control of emotions are in my opinion, the only solution to the creation of wealth in the forex market. This is of course my personal opinion, based on my own experience.
Many strategies are not effective and fail, but to ensure that the failure of a strategy does not lead to bankruptcy (a zero balance) and our previous earnings are not all wiped out by a sudden and painful loss, is the heart and soul of a successful management style. Managing your capital is the main idea and the key concept of a successful forex trader.
How Can You Control Your Emotions?
To learn how to win, we need to first learn how to lose. This may be true in all areas of life, but nowhere as true as with currency exchange market.
Knowing in advance that we may incur losses, we take the necessary precautions to minimize them and this is the heart of the money management. We will try to cut our losses before they become too large in line with our strategy of course. Then we will be careful not to rush to our trading platform to generate huge profits in during high volatility or following a big trend, purely on impulse. It sounds simple but the principle is exactly what is applied by calm and serene people: do not take quick decisions when you are in panic or excitement. If you manage to remain calm you will always manage to outsmart the rest.
Unfortunately for us, when we see money behind a click, a curve that starts to climb at an astonishing pace, we see the pips parading, the potential benefit, we then instantly plunge into the arena, forgetting our panties.
To sum up all of the above to a single concept, I'd say you have to get used to controlling your optimism and pessimism. To learn the trade like a pro you must first acknowledge that the psychological aspect of trading is much more important than you think.