Having the right mindset is crucial in any kind of business. And Forex market trading is no different. In fact the secret to trading success is controlling your mindset.
Forex trading is just one of the many examples of career paths where having a clear and focus state of mind can make the difference between disaster and success. Market trading is risky business and not knowing more about the ins and outs makes success even more difficult to attain.
But with proper education and the right attitude you will get ahead. But what does having the right attitude really mean when it comes to Forex trading?
Having the Correct Mindset In Trading
One of the more important tips in market trading is to keep your emotions in check. There’s no need to be emotional in a business that is strictly made up of facts and numbers. For example, you need not invest on stocks or trade stocks based on personal opinions, hunches or inclinations. You should only base your decisions on known hardcore facts and calculated projections. Don’t decide to enter a trade because you hope the stocks will go up or because you hope your investment will be a good one. Stick to the facts-- remember numbers don't lie.
Some will argue that instincts play a great deal in making decisions in market trading. And to some extent it is true. However, what will help you make the correct decisions are the instincts that you have developed through your time and experience in the market. But instincts alone will not make you a great and successful trader.
If you have been experiencing a streak of successful trades, based off instincts, that's awesome!! But this would be a good time to learn to slow down since it is not really a good idea to keep relying on your instincts or luck. You can become so full of your self that you began to over leverage your trades and trade on higher payoffs. This is a very common mistake and I’m telling you now that you need to avoid this kind of thinking. Organize and develop your own set of trading rules to follow---a trading strategy. This will allow you to step back if you find yourself in a pool of successes and assess whether you are truly trading based off of knowledge or instinct.
Create your own recipe for success. Sure, a sound financial and educational base is needed to make a big start. Learning from others is imperative but relying on them is a mistake. Because eventually you will be faced with a loss and you will need to know how to successfully accept loss. Remember that the best traders learn to lose, and they learn a lot from their losses.
Trading will push you to your limit and test your capabilities and patience. And since you are being pushed hard, as a trader you need to maintain your focus. A focused mind comes only with a clear head.
The best traders think like a winner. Thinking like a winner turns you into a winner. Identify the thoughts that you want to strengthen and focus on them regularly. Thoughts become actions, actions become habits and habits give you the results that you focus on.
Even with pressures, you still need to go easy on yourself. Traders tend to be tough on themselves. A positive self-criticism is different from slapping your face too hard whenever you make mistakes. Learn from you mistakes and then let them go immediately. Self-inflicted psychological damage is difficult to overcome, so it is best to avoid it totally.
Trading is a tough and serious business. But never be too hard on yourself. Relax. The best traders still know how to laugh, especially at themselves. Having fun and relaxing your mind also will help keep your mind clear and focused. Having the correct trading mindset can give you immense results and at the same time have fun while you earn your pips. You certainly, deserve it.
The Psychology Behind The Trading Mindset
The psychology behind the trading mindset is mostly about how conditions direct a person’s decisions with regards to trading.
Most experts agree that trading is generally categorized into three key areas, the mindset or psychology of trading, money and risk management and the methods used for a particular trading system.
The mindset is, by far, the key area of the system that directs a trader’s ability to control and drive the trading market forces at hand, especially how one would deal in a particular situation or circumstances
- Remember the mind drives everything you do in your life and trading is no exception.
When people first get into trading, they wonder how come some end up successful, while others end up at the losing end.
I'm sure any successful trader would agree when asked what is responsible for their success? A significant number of traders will say that having the right mindset is the secret to it all. Psychology is the basis to all successful trading.
Essentially, it is the mental ability of
- managing losses and profits
- considering the good and bad periods in trading
- as well as managing risk and not becoming too greedy
among attributes are major aspects that define ‘trading psychology’ or the trading mindset.
To be able to make good use of the trading mindset, it would be helpful to define how it works:
A trading mindset primarily deals with a person’s character attributes, differentiating the strengths from weaknesses.
Questions to ask yourself?
- Are you a level headed person or highly emotional? This character attribute will make a good assessment of how a person deals with conditions and circumstances affecting one’s decisions when it comes to trading.
- Are you disciplined enough and willing to work hard and sometimes for a long time to get the desired results? This attribute will reveal how one deals or reacts to trading circumstances or situations that affect your trading forces.
To sum it all up, there will only be one overriding influence on trading success and that is attitude, which will ultimately determine trading mindset.
Many experts will agree that attitude will determine whether or not a trading mindset is geared towards a profitable trading career.
Attitude is by far more important than any of the character attributes required for successful trading and it is as important as your market knowledge and your degree of skill. This should be the trading mindset that rules one’s trading choices.
Attitude is best described in a saying that goes ‘It is not important what the market does to you, it is how you react to it that is important.’
For instance, it is not important when one is caught in a situation with the prospect of a losing trade, what is important is how you react to that situation and take action to best help address it.
A good trading mindset is planning and knowing how to react to situations without letting spur of the moment emotions affects your decision making.
Essentially, a good trading mindset is to focus on the idea that successful trading is all about decision making. But because money and inherent natural instincts are very strong triggers, many people find it hard to disassociate their emotions from their decision making process, which should not be the case.
So, in essence to trade successfully, one must be aware of the psychology behind the trading mindset.
Trading Mindset Psychology
There is a psychology behind trading. It is about the perceptions change that you go through once you are actively in the markets trading. Trading on a demo account seems easy, but once you have handled your first live trade, indecisiveness close in. Understanding the trading psychology will help you to trade with the right mindset along with following proper risk management.
Trading psychology and trading psychology issues are the predominant reasons why traders lose. It has been widely discussed in books and lectures that it has been a convenient excuse for losing.
What is trading psychology? Trading psychology is an attitude or a reaction that a trader creates from existing personality traits. These personality traits may not be even related to trading or to market, but they surface from trading.
Common emotions brought about by this personality traits are fear and greed.
- Fear has a big effect on trading opportunities.
- Trades may not be made because of fear or
- they may be closed prematurely before they reach or have a chance to profit.
- Meanwhile, greed will cause you to make trades which are too risky or too large while trying to accumulate gains.
Other emotions you have to check are failure and discipline.
- Failure is perfectly normal but we should not let this get us down.
- Failure is expected and should make us better.
- Discipline is about sticking to your methods and never deviating from it.
- There are traders who change their methods if they are having a winning and losing streak.
According to the trading mindset psychology, the reason traders lose is because they are not psychologically prepared for battle or for trade. There are traders that are not prepared to accept financial risk for something of which they have no control over the outcome. When a trader experience consecutive losses, strategy becomes replaced with feelings of despair and hopelessness. When traders start to have the feeling that it is impossible to do anything right, psychology is more crucial or critical then the trading method in this situation.
They say that trading is 90 percent psychological and 10 percent methodological. Even with the best trading method, if the trader has no control over their emotions, it would be difficult for them to implement their trading strategy effectively.
How to overcome a troubled trading mindset?
You have to make a trading plan and stick to it. One of the purposes of the plan to have an honest assessment and understanding of your trading. You also need to define your trading methodology. You would have to master your emotions in order to seize the profits.
Self- confidence is an important attribute. If you lack confidence then it would show in your deals. Without confidence, you are not likely to trust and follow something that have developed. Successful trading relies on decision making. Again, because money and natural instincts are involved, people cannot remove their emotions from their decision making process. You also need to be discipline with your decision making and focusing on the right areas. There are traders who tend to spend too much of their energy thinking about the wrong things.
What the market does to you is not important. The market may lose or may profit today, but what is important is how you react to the market. Trading psychology may be made by some losing traders as their excuse, but bottom line is, a healthy trading mindset gives profitable results.
Trading Psychology: Mindset of A Losing Trader vs A Successful Trader
In trading psychology, there are two kinds of trader’s mindset. One that fails to seal a deal and one the recovers from failures.
There are traders who see failures just a small setback. And experience where they get to objectify what went wrong to avoid similar mistakes to happen again. A winning trader sees these setback a parts of the steps towards success.
The mindset of a losing trader does not work this way. Success only comes to those who really really want it. Losing traders tend to not take responsibility for their actions. They tend to blame external factors for their mistakes and losses. In order for a losing trader to become a winner trader, one must take responsibility for his action.
Every successful trader has a dream to succeed. Their thoughts are followed by actions. Losing traders tend to leave their thoughts hanging. They may spend too much of their time talking or visualizing. What is required is action. Traders who think too much tend to look for the perfect opportunity in a deal. What happens is that they also tend to switch or move from one method to another making it difficult for them to find the sign that they are looking for.
Traders who think too much, needs to know the effects of the trade before they make any decisions. Trading is a combination of risk taking and use of a good methodology. This kind of trader looks and demands perfection every time. This compromises their ability to take risks and therefore their ability to trade.
The opposite of overthinking traders are those new traders who lack patience and discipline. These type of traders get caught up in their emotions or ideas that they make decisions that they regret in the end. They rush without thinking of the trading plan or method. They are driven by success but they clearly lack discipline. They completely rely on their instincts. They may go on with a trade thinking that eventually everything will go all right if something goes wrong. Unlike thinking traders, undisciplined traders trade recklessly with their capital.
So are you are on the losing trader’s side of the fence? How can you get to the other side? What are the main characteristics of a successful trader?
Willpower and discipline are two things that separate a successful trader from the rest. When the trader’s confidence is down and shaken, then there will be bigger to resolve or willpower to finish the job.
Successful traders are not afraid and overcome of fear when taking chances. This does not necessarily mean that traders are reckless. One has to take calculated risks. We also, for the most part, trade because we want to achieve our dreams. Successful traders sit down and depend on the plan that they made. A trading plan will make sure that you are following a trading method. Period!
Another important key to success is implementing your strict management rules and following them without exception every single day. Traders must be disciplined, stay in control and not let either fear or greed rule them. They must cut losses short, maximize gains and most importantly of all; protect their capital. A losing trader can change their trading mindset for the better. A healthy and a disciplined mindset can be the start of changing a losing trader’s journey into uber success and high profits.