The psychology of Forex trading can greatly affect the way you trade in the market for currencies. Most Forex traders find it difficult to pluck up the courage to open trades in the first place, but this is just the beginning.
It is important and a good idea to develop good Forex trading habits early on, so that you don’t deduce any unnecessary losses in the future.
Now, many Forex traders find it difficult to close their trades in the Forex market. In fact, closing your trades can be even more difficult than opening trades. After you have placed an order, you then have to think about staying in the trade; you need to be thinking about when to exit the trade. Of course it is nice to profit, but you won’t always profit and losses are inevitable in the currency market. Your stops should do all the work for you and effectively too, if they have been properly placed.
The problem is with stops, is that some Forex traders give in and start moving them around. You should never move your stops and you should always obey your previously written currency trading plan. There’s no point in having a trading plan if you aren’t going to follow it; the idea in having one is to be disciplined and consistent with your trading. However, some currency traders still try to ride out their bad trades.
It seems logical to hold onto bad trades until they eventually turn into profitable ones, however it doesn’t quite work like this in the FX market. If you invest in real estate, you might go through some tough times but you can often count on your assets increasing in value in the long run or when an economic boom comes along. However, currencies tend to move strongly in single directions; the values of currencies are generally very persistent. This is why you should never consider holding onto bad trades, because you will most likely see your losses pile up and end up having your trading account completely wiped. Even if your currency trading account wasn’t worth much in this situation, you would most likely not want to come back to the Forex market again. So don’t hold onto bad investments, as doing this could genuinely ruin your Forex trading career completely.
Some currency traders find it difficult to hold onto good trades too, though. When you’re in a bad trade, you can sometimes feel like riding it out instead of closing it. However, when you’re in a good trade, you can sometimes get worried and want to close it too soon. Both of these behaviors can prevent your Forex trading account from growing. Of course if you genuinely feel that a trade is growing fall in value, then you should close it. However, more often than not, beginners will close winning trades purely out of fear. You need to make decisions based on valid reasoning; you need to act rationally and calmly, when trading currencies. Also, remember that trailing stops can allow you to lock in your profits made, as they are just like regular stops except they move up automatically as a trade’s profit/loss increases. Although these work best with longer-term investments, all sorts of Forex traders can effectively take advantage of trailing stops. They will help to ease any worry and fear that you may have when holding open positions that are making you money, in the currency market.
In conclusion, you should try to trade rationally and calmly; you should try to avoid your emotions from affecting the way you trade. Although it can at times be difficult even for more experienced Forex traders, you need to ensure that you cut your losses and let your profits run. It’s best to just let your stops do the work for you when it comes to exiting losing trades. When it comes to exiting profitable trades, you should try to incorporate trailing stops into your Forex trading plan so that they can also do the work for you, however if trailing stops are not appropriate for your trading strategy, you will just have to rely on your instincts. If you have to rely on your instincts though, make sure that you do actually trade instinctively and not emotionally.