Psychology of Forex Trading

In trading there is a small minority of winners and overwhelming majority of losers, and the latter will surely want to know the secrets of the success of the winners. But is there a difference between them? Yes, there is: the person earns money week by week, month by month, year by year, trade maintaining self-discipline. To the question about the secrets of their triumph, such winners answer without vascilar, that were able to reach those heights, when they learned how to control the emotions and to change the decisions, to equal the market.

gustabofx posted:
The factor that motivates the trader to perform operations is the hope of making a profit. If hope prevails over the calculation, the trader runs the risk of overestimating his abilities when analyzing the situation. Hope must be in subordinate relationships with calculation and greed.

That is a great way of putting it, I think. One must always follow the market, rather than hope that the market will do what they want it to do.

The true key of success trading is simply doing nothing most of the time just set your targets and leave the market play

Monnex posted:
The true key of success trading is simply doing nothing most of the time just set your targets and leave the market play

It’s not easy to do so; and I see pro traders have huge knowledge & experience and only then can enjoy this profession; without proper knowledge there is no way.

yeah it's not easy that's why most traders still loosing money

Adribaasmet posted:

Monnex posted:
The true key of success trading is simply doing nothing most of the time just set your targets and leave the market play

It’s not easy to do so; and I see pro traders have huge knowledge & experience and only then can enjoy this profession; without proper knowledge there is no way.

Absolutely right! it seems easy but actually it is very hard. Forex is a battle which can be win only with knowledge.

Interesting point about doing nothing most of the time. That concept helped me to. I taking about 10 trades a day and thoguht that was normal but it was over trading. I cut this down to only 3 a day max and found that it made me wait for the best opportunties

ChenChenGu posted:
Interesting point about doing nothing most of the time. That concept helped me to. I taking about 10 trades a day and thoguht that was normal but it was over trading. I cut this down to only 3 a day max and found that it made me wait for the best opportunties

How can you go with a fixed number; since sometimes there have no good entry point? What do you do actually mainly on this kind of session?

In my opinion, there is no target of trades you must open every day, it depends on your strategy and what i mean is to do nothing is for to set your plan plus trades and forget them

I think what ChenChenGu meant was that they open UPTO 3 per day. So they can take 0 , 1 , 2, 3, but not 4 or more

Plan your trading according to your strategy and follow that plan in detail, don't trade impulsively or randomly - that alone helps with the anxiety provoked by trading.

Here are my thoughts on psychology of forex trading...


The biggest battle a trader has is not with central banks, not with brokers, and not with trading algorithms, it is in fact your inner voice and your trading mindset. Many traders burn out due to the fact that trading is an intense psychological battle of fear and greed and trying to preempt market behavior. Don't worry, even professional traders get it wrong more than they get it right!

A great analogy, and as covered in the chapter on ‘Reality of Trading’, is that of professional golfers, only a very small percentage make a rock-star living from it (approx 0.5%) whereas a few have a comfortable lives (approx 1.5%), even more break even (about 12%) and the rest are mediocre and do not make enough money to get on the radar (majority). Same is true for traders and unlike what many forex marketers promote, trading for a living is a tough gig.

Saying that, trading does not prejudice, does matter your race, your religion, your wealth or even your education, all traders are equal and you are pretty much only as good as your last month.

A healthy respect for the markets is essential and you need to take responsibility for your actions - not everyone gets it right all the time and knowing when to fold and cut your losses is essential as the market may not come back in your favor and it is better to take a 10% or 20% loss than risk being liquidated and losing 100%.

Some questions to ask yourself...
How far are you willing to let a losing trade go against you? (what is the maximum level of draw-down you will accept?)
What win/loss ratio do you expect you will have trading with real money?
Are you prepared to stay up staring at screens half the night to wait for a position to come back into profit from loss?
Can you handle stressful situations where markets are volatile and unpredictable?
Do you realize the difference of trading a demo account to a real money live account?

The biggest aid to your trading mindset is a trading plan and this should have if-then scenarios so that the psychological impacts are minimized as you have a pre-defined plan of action.

The core and underlying driver of trading psychology is FEAR and GREED. Trading decisions are made based on either the fear of losing/risking money or the greed associated with making a profit. This is seen all the time in the timing of the exit and entry of a trade and can take the form of entering & exiting trades too early or too late. Self doubt is the byproduct of the fear and greed foundation and is a constant nagging voice in the back of the head of a trader that questions all aspects of the trading psychology.

So the biggest battle faced by a trader is not the large banks, it is not the brokers, it is not other traders, it is not the central banks, it is themselves.

Handling stress is the next major obstacle that traders need to manage. If a trade goes against a trader then of course stress is going to come into the equation, if a trader has full belief in his/her system then of course the faith in the system should reduce the stress levels applied, however due to the uncertainty of the markets there is always going to be some level of stress, especially when the trade size and consequent risk is applied.

Great comment. I found it very helpful. I will trade a bit differently now

camerongill posted:
Here are my thoughts on psychology of forex trading...


The biggest battle a trader has is not with central banks, not with brokers, and not with trading algorithms, it is in fact your inner voice and your trading mindset. Many traders burn out due to the fact that trading is an intense psychological battle of fear and greed and trying to preempt market behavior. Don't worry, even professional traders get it wrong more than they get it right!

A great analogy, and as covered in the chapter on ‘Reality of Trading’, is that of professional golfers, only a very small percentage make a rock-star living from it (approx 0.5%) whereas a few have a comfortable lives (approx 1.5%), even more break even (about 12%) and the rest are mediocre and do not make enough money to get on the radar (majority). Same is true for traders and unlike what many forex marketers promote, trading for a living is a tough gig.

Saying that, trading does not prejudice, does matter your race, your religion, your wealth or even your education, all traders are equal and you are pretty much only as good as your last month.

A healthy respect for the markets is essential and you need to take responsibility for your actions - not everyone gets it right all the time and knowing when to fold and cut your losses is essential as the market may not come back in your favor and it is better to take a 10% or 20% loss than risk being liquidated and losing 100%.

Some questions to ask yourself...
How far are you willing to let a losing trade go against you? (what is the maximum level of draw-down you will accept?)
What win/loss ratio do you expect you will have trading with real money?
Are you prepared to stay up staring at screens half the night to wait for a position to come back into profit from loss?
Can you handle stressful situations where markets are volatile and unpredictable?
Do you realize the difference of trading a demo account to a real money live account?

The biggest aid to your trading mindset is a trading plan and this should have if-then scenarios so that the psychological impacts are minimized as you have a pre-defined plan of action.

The core and underlying driver of trading psychology is FEAR and GREED. Trading decisions are made based on either the fear of losing/risking money or the greed associated with making a profit. This is seen all the time in the timing of the exit and entry of a trade and can take the form of entering & exiting trades too early or too late. Self doubt is the byproduct of the fear and greed foundation and is a constant nagging voice in the back of the head of a trader that questions all aspects of the trading psychology.

So the biggest battle faced by a trader is not the large banks, it is not the brokers, it is not other traders, it is not the central banks, it is themselves.

Handling stress is the next major obstacle that traders need to manage. If a trade goes against a trader then of course stress is going to come into the equation, if a trader has full belief in his/her system then of course the faith in the system should reduce the stress levels applied, however due to the uncertainty of the markets there is always going to be some level of stress, especially when the trade size and consequent risk is applied.

Very well said.

A very good post @camerongill. Thanks for sharing here.

@camerongill
My respect. It is such a good one!

Totally agree with you man. Very good post indeed.

Is trading psychology really that important? I place much greater importance to money management and strategy optimization

LikeMustard posted:
Is trading psychology really that important? I place much greater importance to money management and strategy optimization

Trading psychology is most important part of trading because when money is involved human become emotional and a trader unable to execute his trading plan 100% due to greed and fear. If you can not execute your trading plan due to your psychology then even a robust trading system will fail to earn money for you.