Forex Trading Psychology: The Secret To Success
Psychology is one of the weirdest areas of forex trading. You can be making perfect trades most of the time on your demo account but as soon as there's real money on the table - even if it's on the tiniest of trades - your system goes to pot and your bank starts to evaporate. If that's the case with you, it's time to examine your forex trading psychology and see how you can improve it.
Think in PIPs
The amount of pips you risk on a trade will stay near enough constant regardless of the size of your bank.
This is actually a very important psychological barrier to overcome. Early on in your trading career you'll almost certainly be concentrating on how much money you're staking and (hopefully) making. But as you get more successful, the size of your trades will naturally increase. And then your conscious mind kicks in and conspires against you, causing you to make novice-like mistakes even though you're experienced.
If you've just started trading this can be even worse. Even the smallest stake feels as though your entire life savings are riding on this trade being a success. At least translating it into pips makes any nagging worries and doubts slightly more abstract.
Become a robot
Whilst many forex robots make more for their creators than they do for traders, the idea of making your trading as robotic as possible helps a lot.
The more you can detach your personality from your trading the better. Our ego is often the only thing that stands between us and an every growing bank.
If you find yourself kicking yourself when you examine those trades where you quit too early or moved your stop loss before your own trading rules really allowed you to then becoming more robot like will help improve your forex trading psychology.
Less is more
I know you're probably thinking that this is a contradiction in terms. After all, if you can make more trades then surely you can make more profit?
That's true if every trade you take has a high chance of working out. But if you go back and examine your recent trades, there's a good chance that you took some "on the fly" even though they didn't tick every possible box they should have done. Then you find you're kicking yourself when you go back and examine them.
So discipline yourself to take less trades - only the ones that totally fit the system you're following.
And while you're at it, cut down on the number of pairs you're trading. Yes, less is more works here as well.
Instead of trying to be an expert in three or more pairs, cut down to two or - better yet - just one pair.
You'll probably need to go cold turkey when you do this but after a few days of just watching one pair you'll be kicking yourself and asking yourself why you didn't make this a part of your forex trading psychology earlier.