Along with these characteristics of forex trading, I'm also going to share my own POV regarding trading psychology, aka human emotions that take part in trading (including some valuable tips on keeping human psychology in check while trading.)
Let's dive right in.
What Is Forex Trading Psychology
Before we flash out all the complexities and mythological terms, let's know what psychology is, right?
Trading psychology or human sentiments in trading refers to a SUPER specific state of mind that eventually helps determine trading outcomes. To be on point, it can be both successes or failures since trade forex comes with both.
And… believe it or not, it's more of a universal truth like the rest. Now, wondering what it has to do with online forex trading strategy.
To be completely honest, none of us is SUPER capable of handling our emotions flawlessly, which often gets the best of us. In that same context, we often lose control over our emotions while entering forex markets.
It may happen due to losing more capital than you can recover or for personal reasons. Still, whatever it may be, these certain behaviours can often hamper one's regular trading routine ending up with unwanted risks and losses.
Besides, in some cases, Forex psychology is considered one of the essential liabilities out there, such as lack of awareness, inability to make haste decisions, inadaptability, and terms like that.
On the other hand, if we talk about the most crucial prospect that all market traders should consider, it would have to be none other than discipline and a risk-taking attitude.
More specifically, the search ratio of the keyword "second-hand products" has risen dramatically by over 300%. At the same time, the searches for "no fees, "buy now pay later" have grown respectively by 90% and 200%.
Metaphorically, these stats flash out that people are more aware of their finances now, and as a result, people are investing more in online trading than ever before. This also means there are a lot of new faces in the trading sphere who are entirely unaware of the systematics and the term "Trading mindset."
A survey from the FX volume outlines that the transaction volumes of the Forex industry have aroused to new heights as of April 24th. The numbers showcase how retail investors are really into "online investing."
Alright then! Now that we've outlined some of the rare intel covering the Foreign exchange market, let's focus on the retail market traders who are still unaware of the odds of "Forex trading psychology."
Theoretically, fundamental terms like human psychology and human sentiments always stayed at the centre of every trader's discussion topic since it often gets complicated to keep them under control, especially when staying under a losing streak. Trading in the volatile Forex market is impossible without a proper hold on emotions.
Following that aspect, the interpretation ratio of psychology and human trading emotion is increasing at a contagious rate; that gets SUPER clear if we look at the numbers and stats from the past few years.
Since 2010, the number of new market traders has risen over 75-77.87%, and if we look at the past five years, the user ratio increased by more than 82%. (As per Wikipedia)
Increasing Number of Forex Traders Since 2017
Sounds unreal, but it's true!
Now, let's add more depth while highlighting some of the most known and unknown knacks regarding today's topic. Independent sources have confirmed that " blogs related traders emotions were the most followed book with an approx percentage rate of 27.88%.
The blogs containing trading forex have claimed the spot for themselves below that number, with a follower base of almost 22.66% traders. Speaking of statistics, blogs regarding forex trading tips and crypto trading tips are also followed by HUGE market traders.
And if it comes to an exact percentage of following blogs related to the context, here's an approximate figure.
Several trading guides prioritizing the aspect of “Forex psychology” were clicked more frequently (66.25%) than other aspects such as trading indicators, forex hacks, trading strategies, and basic stuff.
The remaining traders don't usually give any crap about the importance of trading emotions or online psychology, and we won't be highlighting those factors here.
In a relatively simple tone, trading psychology implies how a forex trader should maintain his feelings or emotions after gaining and losing online trading.
Note: Emotions carry HUGE significance both in online and physical trading; therefore, the aspect of trading psychology is important in terms of trading whatsoever!
If we look at the theocratic, then it's pretty easy to assume that trading psychology deals with a reflex action that market traders approach after each gain and loss that comes along with every traders.
More importantly, it represents their ability and compassion for handling fruitful results and devastating losses while following traders plans or strategies.
And to be completely frank, it's next to impossible to eliminate emotions and start trading in the Forex market since our body isn't made up using robot parts. More importantly, we have control over our complete bodies and emotion.↑
Fundamental Aspects of Forex Trading Psychology Guide
When it comes to the fundamentals of human emotions, fear and greed are most probably considered the most dangerous and terrifying aspects as they often influence the worst-case scenarios.
And as per maintaining a specific balanced behavioural discipline that will give you the upper hand while controlling your emotions, you can read books based on forex psychology.
You can also take advice from expert market traders who are always GAME to suppressing their emotions over making traders' decisions.
And the best approach among all?
Try to create an ABSOLUTE trading plan all by yourself. That way, things will get more accessible in dealing with emotions and stuff like that.
Either way, it will help you stick with a specific day-to-day trading routine that will eventually help you BIG time in the extended run.
Despite all of these, emotions will likely run their course, especially for the first-timers, and novice traders, who will deliberately feel earth-shattering pressures if the price moves too frequently by thinking they are missing out on essential market points.
They are not since the market stays volatile most of the time. Some unwanted emotions, such as fear, greed, and an unstable mentality, will continue to do the dirty work.
Note: By unstable mentality, we've tried to outline a specific prospect " try to win all the losing possession," which destroys most of the chances of winning at trading.
Also, while we're at it, staying mentally prepared is something we all forex traders should follow to ensure proper risk management and decision making.
However, things don't always go according to plan, and that prospect is also eligible for online trading. You may often encounter circumstances that force you to make snap decisions in seconds.
You won't get enough time to follow up on your trading journal or strategies, but don't make this a habit and try to avoid these uncertain situations as much as possible.↑
Importance Of Trading Psychology
From a personal standpoint, most forex traders predominantly go through the opposing perspectives of forex trading psychology rather than the positive ones. And the possible critical reason behind this might be premature losing streaks that often take over our minds.
And trust us, there's no possible escape from that!
Since forex trading psychology plays a vital role in our day-to-day trading life, especially as forex traders, we should opt to deal with it smartly and patiently.↑
Keep Overconfidence In Check
Let's face it; we often encounter BIG-headed forex traders who like to keep cool heads while trading and tell other readers to do so.
And truth be told, they always like to hold an overconfident attitude (which results from exaggerated disbeliefs and over-skill) since they win critical trades.
Now, my point is that might work for them, but what are the odds that those hacks will also work for you, correct?
Are you getting what I'm trying to say?
Therefore, it would be beneficial for you to avoid overconfident attitudes that can eventually lead to your demise in this online trading sphere.
Advanced TIP: Always try to capture your trading stats and preferences regarding all your trading plan and emotional flow cause it's SUPER important!
Besides, let me be evident on a particular prospect. I'm not really against skilled and confident traders since that self-denial is the one that led them to a stable position in terms of market volatility and all the other odds.
But that doesn't mean you know everything that will happen later in the market, and you stay 10000% confident that there's no scope for losing any trades according to any trading plan.
And... that's where my friend that market teaches you "who's the BOSS" and that too in the worst way possible.
However, here are three ways that might be able to help you to keep overconfidence in check. Here are the deets…
No.1 - Evaluate Your Trading Ideas
Evaluating your concept by yourself primarily indicates that you try to ask yourself all the questions that might be possible outcomes while trading in the currency exchange market.
In this way, you stay well aware of all the drawbacks that can go sideways to deal with those aspects more cautiously.
And even if those setups bring losses at the end of the day, you want at least to get much disappointed since you're already aware of all the consequences.
No. 2 - Make Sure You Execute Entry Rule
As mentioned 1000 times, overtrading is considered a severe mental issue in trading strategy ( both online and physical). That being said, always double-check all your entry points before entering into actual trade.
Also, try to backtest all your trading strategies to get to know all the flaws in advance to minimize all the risks.
Note: In trading, the "GUT" feeling will only save you once or twice; therefore, don't put much dependability on it; instead, try to be more steadfast on strategies.
No. 3 - Draw Limitations For Your Losses
Solely between us, there is one specific thing that we all can agree on, which is the feeling of winning. Winning feels pretty damn good, even though I don't have the credibility to deny the fact. I also know how it makes us feel invincible.
But that's not the way online trading works.
There is an opposite factor of winning, aka "losing," When we start to lose, it gets harder to keep a cool head and make sound decisions.
And as for becoming a complete lunatic who'll bet all his money to recover the lost amount is 100%. Keeping that from happening, you can approach certain knacks, such as limiting the number of your losses.
Let's assume you've already lost more than 3% of your net capital; at that time, it would be a wise decision to call it a day and stop trading cause if you continue to trade and eventually lose, you'll face considerable hurdles to keep your emotions in check.
That's why try to limit your trades, which will reduce your loss amount. ↑
Bitter Truth Behind Forex Trading Psychology
Okay! This part of the conversation is probably spitting out some actual state facts that usually get covered up to blame other things instead of the real culprit.
What the hell am I talking about? You'll know soon enough!
Let's start from scratch. We know that trading psychology means a lack of discipline that lets our emotions get out of control and does dirty tricks.
Speaking more logically, why do we even lose our emotions when losing trade in live trading? For losing a lot of trades at once? I meant that's the primary cause for most traders out there.
Now, why lose in the first place? Maybe due to a lack of fundamental knowledge regarding the trading market and other essential aspects such as entry points, positions, indicators, technical casualties, etc.
And for that, who is to blame? Our emotions or ourselves for not obtaining enough knowledge regarding the trade market?
I'll say it's on us. But in return, what do we do? Blame the whole thing on our emotions instead of accepting our lack and credibility.
And the broker or signal providers take advantage of that arrogance by brainwashing us about "forex trading psychology."
While preparing the same process repeatedly, which eventually leads numerous traders to quit at the early stages of their careers.
We all know that certain risks come with online trade, and all our capital can get washed away if we make any uncalculated move.
Despite knowing all that, we blame our basic human instincts and behavioural approaches for failing this profession.
Trust me; it won't ever lead to a sound conclusion, instead will roll around like an infinite loop filled with disappointments and demise.↑
Tips To Conquer Trading Psychology
Here are some HEAVILY filtered hacks (proven through ample implication) that you don't want to miss out on. Let's demonstrate them here:
Uncover Your Personality First
Before opting to get engaged with any particular profession, the first thing you want to do is get to know yourself better. And the exact mechanism gets followed in online trade.
Before starting to trade, you'll need to find out what kind of person you are, impulsive or cool-headed because it will define the longevity of your trade career.
Also, if you get carried away by emotions quickly, you might want to avoid online trading as you'll have to pay BIG prices for those characteristics.
Come Up With A Top-Notch Trading Plan
After choosing to trade as a passive profession, you might want to forge a couple of trade plans and strategies. Remember having multiple trade plans on standby will serve you like silicon valley.
P.S:Try to become compatible with ample trade styles instead of sticking with one cause you may never know when such circumstances will arrive, forcing you to exit your comfort zone and trade in uncertain situations.
Expect Less Than Anticipated
We all agree that success doesn't come knocking on your days regularly. Instead, it comes to those who are consistent and dedicated to their commitment.
While trading in the foreign exchange market, having patience will unlock infinite opportunities for you. If you are persistent enough, you'll be able to execute them in your favour.
Throw Out Greed From Your Life
Being greedy will only create obstacles in your path, no matter which one you take. If you're ravenous, you can say goodbye to all the success.
And when it comes to trading, greed will turn your losing trades upside down in just a matter of time.↑
Attain The Mindset Of a Successful Trader
Mindset is considered one of the fundamental factors in terms of losing trades. If you possess a strong attitude, you'll most likely advance to greater heights in this industry or be like many traders making average daily profits.
I was wondering how to attain a mindset like successful traders before you. Follow these steps stated below, will you?
Bring Positivity To Your Life
The power of positivity is IMMENSE! It can change the complete overview of your day-to-day life for the better. As for trading? You can expect the same results as you'll be making calculated and sound trade decisions that will ultimately bring fruitful trade outcomes.
Burn Your Ego
Ego is something that'll burn all your good deeds, and in trading, it'll diminish your trade credibility. Therefore, it would be wise to keep aside your ego while trading and accumulate hints from other successful traders performing consistently.
Don't Just Trade
There's much to learn in the online financial market except for only opening trades and accumulating gains. Interact with other traders, gather updated strategies, and evolve regularly. It'll help you grow as many traders did that too in a short amount of time.
Don't Get Disheartened Easily.
There will be times when you'll encounter losses after losses, and it's essential not to lose heart at that moment; instead, stay strong and keep patience. Because there are always two sides to the coin, and after losing some trades, it's not impossible to win other transactions.
Lastly, it concludes that one of the most anticipated topics, "Forex trading psychology," won't sound complete since many prospects need actual uncovering.
Point to be noted; there are countless myths about trading psychology that You'll be better off knowing.
It usually goes like this:
- It's emotions that are the actual problems.
- Trading psychology only consists of fear and greed.
- Discipline is always the key.
- Demo trade and live trade are the same things.
Trust me, all the facts stated above are delusions created to emphasize the significance of emotions in trade. Therefore, keep them in check, will you?
And it's also true that the learning process will most likely take some never wrecking time, but in the end, it's worth the effort.
Therefore, ready to challenge the odds of the financial industry while achieving mastery of your unnecessary emotions? Well, you better be! ↑
Frequently Asked Questions (FAQ)
Q1 > Do psychological levels work in forex?
Ans: Psychological levels are market price levels, often crucial in forex denoted by round numbers. These rounded numbers frequently act as levels of support and resistance. Psychological support and resistance consistently work because of fundamental human disposition.
Q2 > Why is psychology critical in forex?
Ans: To overcome fear and anger and manage impatience and greed, traders need to practice their psychological responses to various situations, just as they practice their basic trading skills. This way, they will not be overwhelmed when the market behaves in/against their favor.
Q3 > How do you trade with psychological levels?
Ans: For example, if a stock is trading at $98, you can place a buy stop at the psychological level of $100. The idea is that if the stock rises above this level, it will keep growing. Similarly, if the stock is trading at $103, you can place a buy limit at $100.
Q4 > How can trade psychology be overcome?
Get Yourself in the Right Mindset. Before starting your trading day, remind yourself that markets are never constant. ...
Have a Great Knowledge Base. ...
Remind yourself that you are Trading in Real Money. ...
Observe the Habits of Successful Traders. ...
Q5 > How important is psychology in trading?
Ans: Trading psychology represents various aspects of individuals' character and behaviors that influence their trading actions. Trading psychology can be as important as other attributes such as knowledge, experience, and skill in determining trading success.
Q6 > How do you overcome greed in forex trading?
Ans: If you want to be a successful trader, you have to manage fear and greed: