Trading Psychology

Importance of Trading Psychology

trading psychology
Forex Trader with different views
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A career in Forex trading is a lot different from other careers. It is a long road to travel with many obstacles and challenges. It is not just about analyzing the charts and making predictions alone. There is one big enemy who stands in the way. Do you know who that is? It is your own mind!

One of the key qualities when it comes to Forex is the ability to make decisions quickly. In fact, your every trade is based on three decisions:

  1. Whenever you place a trade, you decide to risk some money to earn money.
  2. After analyzing the market carefully, you decide when to enter the trade.
  3. You also decide how much you want to risk, based on your available capital and your risk tolerance level.

But, emotions and thought process can impair your decision-making skills. The ability to manage your emotions and a good trading discipline are one of the key traits to have in Forex trading. There is actually a separate field of study, which can help you with this. It is called Trading Psychology.

What is Trading Psychology?

Trading psychology in general just refers to the emotions and mental states that dictate success or failure in trading. Understanding trading psychology is very important in all markets- Forex, Stocks, commodities etc.

There are two important aspects when it comes to trading psychology:

  1. Trading discipline.
  2. Risk taking.

Implementing these two properly determines a trader’s success to a huge extent. A trader should manage the risk properly, understand the risk profiles for various trading styles, aware of his or her own risk tolerance level and learn to manage emotions such as greed, fear, hope, and regret.

The Essence of Trading Psychology

Ultimately, consistent profitability comes down to choosing between the discomforts you feel when you follow your plan and the urge to let yourself be captured (and ruled) by your emotions.

― Yvan Byeajee

The above quote beautifully summarizes what trading psychology is all about. Many intermediate level traders perfectly understand what they need to do and have a good trading plan to accomplish their goals. They have a well-tested strategy, a good money management plan and a lot of capital to work with. In addition to that, they also have at least two to three years of experience in Forex trading. But a majority of them still doesn’t earn according to their potential, simply because of emotions.

In our experience, successful traders are the ones who enjoy trading and have fun in placing trades. If your motivation comes from a fascination with the economy and currency movement and a real passion in trading, your success in the long term is ensured. Because interest and passion are what breeds success. But if you approach Forex as a quick money making scheme, then emotions will surely get in the way of your success.

Take your time to read all the articles that we post regarding trading psychology. We will be covering many topics such as improving patience, accepting losses, improving trading discipline, overcoming greed, handling emotions etc.