Forex Trading: Emotional Control in the foreign exchange markets is a “Must Have” for any Forex Trader
In the previous three articles, we have touched upon the basics of foreign exchange markets trading and noted that the key success factors are knowledge, experience, and emotional control. The latter one may be the most important of this triad, yet many traders neglect this attribute at their own peril.
Trading psychology is a burgeoning field of study that attempts to catalogue the various negative influences that our minds can generate trading in the foreign exchange markets, especially when trading under pressure in the foreign exchange markets with real money on the line.
Several studies in the past twenty years have confirmed that our emotions can undermine even the best intellectual framework devised for decision-making.
We tend to magnify our losses, forgetting our good trades altogether, and then the “scrambling” begins in earnest.
Entering a position is a positive event. Most traders do not stumble at this point. Hope springs eternal when a new opportunity jumps upon our screen.
The trouble comes when it comes time to sell. Suddenly we remember the last bad trade we made or how we cut off a loser just before it rebounded for a big gain. We “freeze”, unable to pull the trigger, as our emotions get the best of us and create a “detour” from our trusted trading plan in the foreign exchange markets.
Procrastination sets in until the loss is too heavy to sustain. We close our position, defeated once again.
Not a pretty picture, is it? This outcome need not have happened if we had stuck to our “step-by-step” trading plan, implementing its rules right on down the line. Allowing oneself to get emotionally involved in a trade is a recipe for disaster for a trader.
The only tried and true prescription for avoiding this negative flow of events is to practice your trading plan on your “demo” forex account until it becomes habitual. Trading demands a cool head, a disciplined approach, and business-like decisions.
In line with achieving emotional control, there are also bits of wisdom that traders have passed down over the ages to solidify positive trading thoughts in their minds. Here are a few insights gained from years of experience:
Successful foreign exchange markets trading is about experience, skill, and consistency, not gambling or getting lucky. Be patient, have fun in the process, and remember -- it’s all about knowledge, experience, and emotional control.
Risk Disclaimer: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite.
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