August 1, 2017, 8:00 AM EST
by Newsmovesmarketsforex Staff Writer
If you are new to Forex trading, knowing the basics of the psychology behind its working should be one of your topmost priorities. Forex traders need to concentrate on developing the right frame of mind before engaging in trading activities. In order to develop an effective trading strategy based on logic, rather than emotions, one must completely grasp what Forex trading psychology is all about.
Overcoming your emotions is the key to success!
Greed, fear, and hesitation are the major emotional hurdles which cause traders to lose out on good trading opportunities and suffer losses. Before getting involved in trading activities in the Forex Market, a trader must keep a few things in mind:
- First and foremost, the trader must have a foolproof risk management plan which involves a well-researched trading strategy that takes into account the benefits and risks associated with making Forex trade deals.
Identify the risks and rewards involved in any trade deal, set clear boundaries, adhere to the established trade plan and don’t deviate from it.
- One of the most important concepts in risk management is the ratio of risk to reward for any investment undertaking. The trader must accurately determine the maximum value of this ratio that is acceptable to him/her. If the risks associated with a specific deal outweigh the benefits associated with it, the trader should avoid committing to such a deal.
It should be noted here that for example a ratio of 1 to 2 implies that the trader is risking 10 pips for a potential gain of 20 pips. (Where pips stands for percentage interest points and is used to establish how much the exchange rate of a foreign currency pair changes.) Tackling Forex trading apprehensions Novice Forex traders usually suffer from a certain level of anxiety because they do not have a good understanding of how the trading process works. In order to be more in control of their emotions, they need to know how to execute beneficial trade deals to gain good profits and use various tactics to minimize their losses. Jumping headfirst into trading activities without weighing the pros and cons of making trade deals can be quite damaging to the interests of a trader.What a trader must understand is that Forex Market conditions change on a day-to-day basis. Prediction of the direction in which the Market may head next can only be made by carefully taking into consideration an array of factors, such as, the prevailing market sentiment and conditions. As well as dynamic historical price structures, trends, price action and support/resistance strategies. At times some FX strategies do not always yield consistent results. The outcome of using a certain strategy depends on a number of aspects of the market. Having a good grip on your emotions may give you that competitive edge and ensure that you benefit from your Forex trade executions. An effective trade plan can only be created if a Forex trader has complete control over his/her emotions. The creation of a good trading plan is only the first step toward success. The traders must also have the will power to stick to the plan and prevent their emotions from leading them astray. In order to become a successful trader always use a Rock Solid trade plan when trading the financial markets. Your trading plan has to be based on good fundamentals and it must involve the determination of existing market trends and comprehensive of the fundamentals of your entry and exit points.
Forex traders should be extremely aware that investing or trading in the foreign exchange markets encompasses a great deal of risk and may not be suitable for everyone. Prior to investing in the forex market one should access or consider your investment objectives, level of experience and risk appetite. One should only use risk capital, traders should never invest money that you cannot afford to lose.
How can trading anxiety be avoided? Here are a few things you should keep in mind to avoid trading anxiety:
- Don’t be over-competitive!
There are times when a trader needs to restrain himself/herself a little and not be too greedy. Walking away with a small profit is a lot better than losing a large amount of your investment. Know when it is time to exit,in order to avoid financial losses!
- Keep a positive frame of mind
Always stay positive about your trading prospects and remember that you are not going to walk away with a win every time you make a Forex trade deal. A negative mindset will adversely affect your ability to successfully participate in the Forex Market trading activities. Experienced Forex trades focus on minimizing their losses and make a decent profit from their trade deals. Synopsis of Forex trading psychology fundamentals Forex trading psychology is not as complex as it seems. In order to be successful, all Forex traders need to master their emotions. Making good Forex trade deals based on logic will possibly allow traders to reap rich financial rewards. The key principles of Forex trading psychology can be summarized in the following points:
- Traders must identify the risk to reward ratio that they can tolerate
- An appropriate risk management plan then must be developed to keep losses in check
- Traders need to create a well defined trading plan based on solid market data and stick to it
- A thorough market analysis needs to be conducted to determine when Forex trade deals should be made
- Complete control of one’s emotions is necessary when executing trade deals
- Avoid being greedy or panicking when things aren’t going well
- Always stay positive and try to seek the best possible Forex trade deals.
What to keep in mind when trading… Here are a few things a novice trader should always remember:
- Continuously improve your knowledge of the Forex Market to make good trade deals
- Never be overwhelmed by the dynamics of the Forex Market.
- Don’t let a few bad deals get to you.
- Always think positively and prepare for success.
- Be as realistic as possible and base your trade deals on carefully well thought out fundamentals and analysis strategies.
- Take calculated risk and be mindful of all the factors that shape the Forex Markets
To become a successful trader, be cautious in your trading approach and look to both sides of the road before crossing. A comprehensive trading plan is the key to succeeding in the financial markets. News Moves Markets Forex aims at helping novice Forex traders gain the knowledge they need to successfully participate in the Forex Market. Our Forex Learning Center Library has the latest information about Forex trading related matters. We provide accurate and up-to date Forex trading news yo you. We provide traders with the skills they’ll need to maximize their Forex trading potential. Stay locked in to NewsMovesMarketsForex—your go-to Forex educational portal!