Forex Psychology Principles

Trade with the Forex trend only

Stay focused on the large market trends & do not try to react to every price action move. "The trend is your best friend!" follow it. Investors need to follow the trend when transacting currencies online. One of the principle of market psychology is to always trade with the trend.

Most beginners will enter the market when the price chart shows a steep movement. These traders do not even take the time to understand what are the forces that are causing such a movement & thus make the mistake of being too eager to enter in to the Market: they want to rush and be the first ones to enter into the market after an economic info is published, without any regard to the direction of the market price trend only to finally realize that it was just a fake out when they are already in a losing trade position. In such situation, most seem fearless, not fearing making losses and only worrying that other traders are making profit while they sit on the sidelines. In Trading Psychology this is the in the opposite trend trend trend of what traders should be doing. In your trading plan sample you should write clear guidelines within their currency plan on how to avoid this type of mistake.

In FX, the rule is to never be too eager to enter the Market: learn to overcome the feeling of worrying that you'll be too late to make a profit. Take time to analyze & interpret what is the impact of the economic data released.

Sometimes this breaking news does not dictate the forecast of the likely market direction. You have to analyze and interpret carefully if it will have a big impact on the currency prices. Most often, these data gives and generates false entry signals.

It is important that you overcome your eagerness to be the first one to enter the market using Forex psychology. You have all the time to analyze & interpret the impact of this breaking news before you enter the market.

It may take more time but your trades will be heading in the right direction. This is what we call following the market trend.

Trade with a disciplined Forex plan

Investors shouldn't base their trading positions on a just a hunch. Positions should only be executed using a well organized plan. Plan should specify the rules of entry and exit. Use the psychology section to specify your mindset when opening currency transactions.

Investors should examine all of the factors carefully before opening a position & they should not let fear or greed or someone else's influence to cause them to enter or exit a position before their Forex system gives and generates a signal. Don't let the temporary circumstances/situations erode your conviction, use discipline to follow your trading plan.

Using a consistent and disciplined plan eliminates the need to make rush decisions depending on short-term price action moves.

Cut your losses and let your profits run continuously for quite some length/duration of time

Some investors hold onto losing trading positions for a long duration of time in the hopes that these trade positions will turn and move in their trade direction after a period of time. However, this never happens & the market keeps going against these losing trade positions and makes them lose even more.

The other mistake that investors make is to not book the profits at the opportune time, all investors should try to maximize profit per trade but at the same time be aware when the trend changes and close out positions at that time & not to wait while their trading positions in the market are open. Only keep positions as long as the market trend is in place & close once the market trend indicates signs of slowing.

Losing Forex investors see loss as failure. Winning investors see loss as a studying experience, this is one principle of market psychology which helps them improve their trading profits.

When winning traders make a loss, they haven't failed, they've just learned something new about the way the currency market works. Winning traders always look at the big picture and stick to their Forex plans.

Many traders in a losing trading position wait for the best time to cut a loss. However, the best time to exit never comes & the trade transaction continues to lose money. Best time to exit the trade is when the loss is low i.e. Less than 30 pips but not when the loss is hundreds of pips. Your account may be wiped out while still waiting for the market trend direction to move in your favor.

A losing position from the start is likely to stay like that - Popular Saying by Investors.

Use psychology and learn to cut losses & avoid holding onto losing trade positions in the hopes that the markets will move in the other direction. There is always a new opportunity to trade as long as your margin is not tied up in a losing trading position.

An investor should get released from a negative psychology and apply the money to do another currency trade. An investor should cut the losses quickly and move to profit making positions. Some investors will end up sitting on a losing position; they generally allow the price to move against their position many pips while hoping that the trend direction turns and goes back in their favor.

Profits are made when trade positions are closed not when they are opened, henceforth be ready to close your open trades as many times as possible.

It is a wrong belief that each transaction will gain profits. A trader can still make money even if only half of his transactions are profitable. Question is how an investor can make profit with only half of his trade positions winning, the answer is that one should keep the losses at a minimum & open other profitable trade transactions. This way the greater number of profit trade transactions offset the losses.

To learn more about psychology and how to transform your mindset using a trade plan go the tutorial FX Plan.

Currency Plan - Psychology Section

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