Although this blog emphasizes the quantitative aspects of trading forex, we have yet to write about the all important qualitative factors. Trader psychology is one of the least talked about aspects of trading, yet I feel it is one of the most important to master. You can master technical and fundamental analysis, but if you can’t control the motor that is your brain, you will never be profitable.
Now this article cannot teach you how to become a master of your own emotions, but it will create a rough outline to help you get there. For certain matters in life, there is no better teacher than experience.
Forex Trading and Your Emotions
- Be confident in your work. If you have put in the required hours of practice on the charts and you feel that your analysis is solid, there should no reason for you to be second guessing yourself.
- Imply risk management. This should be a no-brainer by now, but it really isn’t. I see it time and tie again, people with $2,000 balances in their account with $1,500 floating profits. This is great and all, but 99% of the time the reason why they’re up $1,500 is because they threw risk management out the window and opened a trade with a standard one lot. Trade capital you’re willing to lose, and risk no more than 2–5% per trade. Even if you lose five trades in a row, your account will only be down 8–20%. One bad trade with terrible risk management can whip out your entire account. Risk management and controlling your emotions o hand and hand. You imply risk management, you won’t be worried about facing some draw down or going on a losing streak (which happens to the best of us).
- Back away from the charts. Once the analysis is completed and the trade is placed, do yourself a favor and go out for a walk. I remember when I first started trading, I had to monitor every candle close after I had placed my trade. It was complete torture, and honestly I believe it made me lose more money than gain. So, stop watching the five minute chart and go do something other than trading. Reset your mind, before you attempt to enter another trade.
- Understand that your goals, are your goals. You aren’t competing with anyone. Many new traders get attracted at the idea of becoming a millionaire in a months time because they saw so and so do it on Instagram. Set realistic goals, and understand that trading is a journey that is done solo. Just because your friend gained 11% last week, does not mean you need to one up them or match that this week. The traders that are bringing in ridiculous returns are high-risk traders, and every high-risk traders run will come to an end. Play the long ball, and stick to what you want to achieve in trading.
- When the going gets tough get tough (be smart). If you have a losing streak, don’t be so down about it. Losing streaks happen, and as long as you have more winning days than losing days, I see no problem. When I have a losing streak (usually NFP), I take a second to really analyze what the cause is. Am i trading implicitly? Am I trading with a preset bias? Am I trading during a week of low volume? When loses happen, it is best practice to learn why, so you can reduce the chance of recurrence. Do not revenge trade, and never get attached to a trade
These are just a few rules you should follow when trading to keep that mind of yours even-keel at all times. There are other rules to follow, but they are usually a variation of the five I stated above. Keep calm, and collect those pips.