Forex Trading Psychology

Submitted by Share Trading on 26 August, 2017 - 08:17

Life is like a roller coaster with its many ups and downs, Trading is a similar ride. When we go through either one of this two experiences, we find ourselves going through a range of emotions, from excitement to fear, fear to hope. Hi, my name is James and I will like you to join me as we discover trading.

Today, I'm going to start looking at the psychology of trading with the hope that by the end of this video, you will understand some of the emotions you go through while you are trading and how you can control this emotions to make better trading decisions.
When it comes to trading, so many overlook the importance of understanding the psychology of trading. And more than quite often, new traders find themselves losing and can't quite understand why, they will ask we are looking at the same charts, we receive the same news and alerts, why is this happening. The answer often is because of the lack of knowledge about the emotions you go through and how to control them. Now, Emotions enable us to react to situations be it, anger, fear or happiness. This emotions are controlled by the limbic system of the brain which is also responsible for the formation of our memories.

One of the biggest battles that every trader will go through is the conflict between two emotions known as hope and fear. Probably, the most common mistake that new traders make is that their losses can be bigger than their profits, the main reason of this is indeed because of hope and fear. Picture this, you have a winning trade in the market which is in a profit, you feel excited and happy and then fear starts sneak in, as you start to worry, those good feelings will disappear an minute if the market turns against you and your profit will vanish. As a result of this force which lead to the feeling of fear, you quickly close up position and literally snatch up at that small profit. (MyShareTrading.com)

Now, let’s look at this scenario in reverse. You have a trade in the market that is losing, this time however, you are experiencing a different kind of emotion; Hope. This time you find yourselves hoping that your trade will turn itself around so you don’t close your position. But that position keeps on losing and the loss get bigger and bigger and till in the end it either stops out or you close your position taking a much bigger heat than needed. In this scenario, your losses will be bigger than your profit.

Reality is, if you look at most trading accounts, you will likely see more winning positions than losing positions, but because the losses are bigger than the profits, the account balance will most likely be in a negative. This is one of the biggest hurdles that every trader faces.

How do you solve this? You switch this emotions around.

How you ask?

Well... when you have a profiting position, you need to think if you've got the direction right and hope for more profits. When you have a losing position you need to think if you’ve got the direction wrong in the fear for losses and instead take a small manageable losses

This of course is much easier said than done and as I said, it’s one of the toughest emotional battle that can occur but by identifying this emotions and understanding them, you will be in a better position to try and master it.

Join me next time as we discuss the methods that can assist you in this battles of emotions as we continue to discover the psychology of trading. Till next time, YOU TRADE SAFE!