Editor’s Note: All investments come with risks. We in no way guarantee that following the below will ensure success. The below is not meant as investment advice and should not be taken as such.
We have to give technology and human innovation the praise for Forex in 2022. In earlier times you’d have to enlist the help of a brokerage firm if you wanted to invest in the financial markets. Nowadays buying another country’s currency is as easy as picking up your phone. This low barrier for entry has led to an increase in aspiring Forex traders. If you’re reading this article, most likely you’re interested in the financial market.
We won’t shill strategies with 100% success rates in this article, we’d be going a different route. Let’s start by dispelling the notion that a good strategy guarantees success; keep an open mind as we show you why.
The Perfect Strategy Does Not Exist
Newbie traders spend the better part of their formative years looking for the “holy grail,” the strategy to end all losses. Sorry to burst your bubble, but it doesn’t exist; any strategy that promises a 90% win rate is pure fantasy. Why do we say that?
First off, the financial market is unpredictable; all anyone can do is study previous patterns and hope they repeat themselves. Any strategic treasure hunter can relate to thinking you’ve found the right plan, and getting a few profitable trades; then it seems like it no longer works. Most likely, your strategy was just good for the pattern the market was making at that moment. What happens when your strategy is meant to catch trends and the market starts ranging?
This is why strategy alone cannot save you. Asides from risk management, you need something more; you need to have the mentality of a trader.
The Psychology of Trading
Having the right trading psychology will take you where the perfect strategy couldn’t, so what is it? As the name implies, it refers to the mental and emotional state of a trader at a particular time. If you’ve ever gone to pitch a project or perhaps an interview, you should know how important having the right mental frame can be.
If you look at how a person trades, you can often decipher how they think; it is easy to see who is calm and methodical and who is lost in their emotions. You might have come across prodigy traders, people who just seem to get it right every time. You might even use the same strategy as them and still get burnt; it makes one wonder, “ what do they know that you don’t?”
They just have the right mentality and can keep their emotions in check. Some don’t even know that they’re unconsciously doing this; it just seems like they have a secret they’re not sharing. The good news is that it is something that can be learned. Let’s look at what you should work on to get that mentality.
Control Your Fear
In the real world, what happens when humans are faced with fear? Some will run, and some might face the fear, but there is one constant; no one thinks logically when scared. Consider this; a teenager still living off his absurdly rich parents is less likely to be scared of losing money. If we compare it to someone juggling 3 jobs to stay afloat, we can see who might be scared.
That’s what you have to understand, the fear you feel is because you don’t want to lose money. The easiest way to remove the hold fear has on you is by investing only what you’re willing to lose. If what you invest is as meaningful to you as money spent at a bar on drinks, why should you be bothered if the market is going against you?
No one is saying you shouldn’t care about your money, instead, we want you to think logically without emotions clouding your judgment.
Indecisiveness
Most traders can tell you a story where they hesitated to enter a trade only to have it go their way. This is what separates professionals from novices. They’re so sure of themselves that they enter a trade immediately after their strategy prerequisites are hit. The only reason for hesitation is fear, and if you are scared you should read the point above.
Greed
Greed has wrecked as many accounts as fear, if not more. As a trader, one thing you should have in mind is that if you never close a trade you never take profit, it doesn’t matter how “green” your account is. There will always be a better exit, and you have to understand it is impossible to collect all the profit.
Oftentimes, traders find themselves in a profitable trade and refuse to close it even when their take profit has been hit, Why? Because the market is trending strongly. A better approach will be to collect some profit and join the trend again. If it’s not chilling in your balance section it is not yours.
No Discipline
In real life, a person without discipline will find it hard to stick to appointments, study, and even deliver jobs. This applies to the financial markets too, it is a volatile environment and is meant to devour the nonchalant and careless.
- Your trading strategy
- Stop loss
- The time you will be in trade
- Take profit
These are decisions you cannot compromise on, without discipline you’d have a hard time sticking to it.
Conclusion
Finding success in Forex trading is a mixture of a good strategy, the proper psychology, and smart risk management techniques. When one is missing it all falls apart. Having the right trading psychology doesn’t come overnight, but with constant practice and self-evaluation, you can make it work.
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