The Psychology of Forex Trading

While successful Forex traders know that all hard-work, good practice and an attitude of success are required to be successful in the Forex market, they also acknowledge that it is very important to master their emotions when they trade currencies.

There are various elements of trading psychology, the main ones being: confidence, discipline, greed and overtrading.

Firstly, you need to be confident in the currency market. Confidence is required, in order to be successful in the long-run. Don’t even consider placing a trade or investing any of your own money if you aren’t confident. You might lack confidence when you don’t believe in the trades you are placing, or maybe when you are putting too much of your own money at risk and don’t feel comfortable. Ultimately, gaining confidence in the FX market takes time, practice and experience. However by putting in more study, you will be able to justify your trades more as you will know more about the market, allowing for more confidence in your trading. Another way to increase your knowledge of the market, is to take advantage of demo accounts. Demo accounts will also give you more experience of Forex trading.

In order to tackle a lack of confidence caused by risking too much of your own money, risk less money – it’s simple. You could even consider using the same amount of money as normal, but simply decreasing the amount of leverage you use. Remember though, that many online Forex brokers offer micro accounts which will allow you to trade micro lots. Micro accounts require far more modest initial deposits and micro lots allow traders and investors to trade with far less money.

Discipline is also important in the Forex market. Taking a professional approach to Forex trading is ideal. Good money management combined with a good trading plan, will help to ensure that you remain disciplined. The more advanced and professional traders and investors in the currency market, know that discipline is required in order to be successful in the long-run.

Another element of the psychology of Forex trading, is greed. Greed can be issue for many traders and investors in the FX market. Greed links in with discipline. Never be greedy, or you will most likely end up losing everything.

Lastly, overtrading is another element of Forex trading psychology that needs to be taken into account. Overtrading in trading psychology, involves placing more trades than you can actually manage. Overtrading can be caused by overconfidence, a lack of discipline and greed. Overtrading is also a sign of poor money management and a poor trading plan. In general, you should never risk more than 2 to 5% of your total account balance at any one time.

In conclusion, the main elements of Forex trading psychology are: confidence, discipline, greed and overtrading. Remember, it is also worth mentioning that many traders and investors in the Forex market, blindly follow the forecasts of others. It is recommended that you don’t simply copy others, but take their viewpoints into account. You need to diversify your sources of information, if you want to optimize your results.

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