Trade Forex Trading

Psychology of Currency Market

The reason/explanation why 90% of traders lose can be summed up with two words:

Forex Psychology

Many people fail on the currency psychology front & only a few take the time to transform their mindset. The reason why most people make losses is not that they can not beat the market, but because they don't have the right mindset. Forex psychology is all about transforming your mindset.

In Forex, you must first master your method & then put in many hours of learning how the market works.

The currency market is too complex and there are many factors and aspects that have a huge impact on the daily fluctuation of currency prices. Traders should understand how the online currency market works through studying Currency trend characteristics and also how these fluctuations/oscillations happen.

Psychology and Emotions

In the market, winning is a matter of the mind. Studying the psychology of the market takes into account what influences others - including the mass psychology of the people that transact currencies on a daily basis. Anything involving winning or losing big amounts of money becomes emotionally charged. Winning depends on knowing your own mind & also understanding how mass psychology moves the currency prices.

In most cases when traders invest in a currency, they invest more than just money - they make an emotional investment. This is where most go wrong; being right becomes more important than making money. When the transaction goes wrong since they have already made an emotional investment they let their decisions to be ruled by their emotions & they hold on to their losing trade positions in the hope that it will bounce back. Unfortunately their losses become greater & they find it even more difficult to close-out their trade orders.

Even when traders make money and let their emotions get in the way, they either become greedy or overtrade.

Forex psychology will form a good foundation for profitably - it is about learning how to keep emotions out of the picture, & not to letting these emotions control your currency transaction decisions - trader behavior changes very little with time, as humans will always make the same mistakes over and over again.

You as a trader can learn how to control the three3 most unproductive emotions which tend to cloud judgment and cost you profits. These 3 emotions include:

  • Greed

  • Fear

  • Hope

6 Tips for Transforming Your Mindset

1. Define your goal.

There are many important Forex questions that you need to answer before jumping into the currency market. Developing and defining agoal will give you a start and begin point to your success.

2. Keep it simple.

Some people use more than 5 indicators on one chart analyze and to inform them of their next move with no success or even breaking even. The thing is that more indicators do not equal more accuracy.

The 3 most powerful tools to use are:

  1. Candles (buyer and sellers behavior),
  2. Price action (such as support & resistances), and
  3. Trend line (up, sideways or down).


3. Do-not get emotional.

If you're attaching emotions to your forex trades because there is real cash involved you need to change your mindset and start following your trading plan. If you're a novice trader with no previous experience always start with training & learn until you start making profits on you practice account before investing your capital.

4. Nothing wrong with break even.

Not all your trade positions are going to be winners. It is better to break-even on a trade than to lose. If you know that a trade position has turned against you, do not start praying for a miracle to happen, hoping for the market trend to reverse and start moving in your direction, instead cut your loss and move on to the next trade. There are endless and numerous profitable trading opportunities in the market.

5. Speculation is your worst enemy.

Don't speculate on where a currency pair maybe heading. Always use your currency trading charts and your plan & study the market trend before opening a trade position. The trend is your friend, so make good use of it by following the price charts.

6. Don't allow your winning orders and positions to turn against you.

If you have an open winning transaction at hand don't allow it to turn against you. It is better to place and set a stop 5 pips above the entry opening point & break-even/or win little than to let it turn into a loss.

For how to utilize these tips look at the FX plan guide: the section about this is shown below.

Forex Psychology Section on Plan - Transforming Your Forex Psychology and Mindset When Trading

Psychology Section on Forex Plan

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