Forex Psychology: Tips to Enhance Trading Psychology for Traders

Never pick market bottoms and market tops

Some Forex traders are always trying to pick top or bottoms when trading the market.

These traders want to sell at the absolute top & buy at the absolute bottom way even before the currency market direction has turned and reversed. Those who try and pick the market reversal turning points are almost never accurate in their call, their trade positions generally moves against them for quite a substantial amount of pips after they open their trade - only for them to get stopped out before the market turns. And that is if the market turns at all - most of the time when a market is trending the price will generally keep moving in a general direction - either upward or downward. It is always better to wait & open a trade position after the market direction has turned and reversed than try & predict the turning point before the market has really turned.

Most of the time, it is better to trade in the same direction as the market trend. Traders even have a popular saying: "THE TREND IS YOUR FRIEND." While there is always a point where a trend changes, no one can predict exactly when a trend will reach its highest or lowest point. This is decided by the market. The market's forces create the high and low points. So, if the market forces haven't decided on a high or low point, traders shouldn't try to guess these points for the market forces.

Never Average down

Some traders buy extra when prices fall. They hope to offset earlier losses if the market swings their way. This approach seldom pays off. Prices tend to keep moving in one direction once they start. That pattern lasts for a good stretch. In trading, it's called a 'trend' or 'market trend'.

The idea of buying against your first trade position so as to offset its trading loss gets more complicated once the currency market starts moving against your second trade position.

Opening extra trades just to fix an early error means trouble. You enter them not from real market checks or your plan. You do it to cover losses. Set stop losses instead. Exit bad trades at your limit. Wins and losses happen. Keep that trader's view.

Know when to trade and when not to

A good trader understands that there are times when it is just better to be in an all cash position & watching the market from the sidelines doing nothing and waiting for another trade opportunity when the market has more favorable factors - or in trading terms, when the market has a better RISK:RWARD RATIO. Knowing when not to trade is just as important as knowing when to trade - if not more important.

You can trade one day in a week and make profit if the market setup was correct according to your trading strategy or you can trade 5 days a week (and if you aren't following your strategy) and make a loss. It's all about following your Forex trade system/strategy. If there is no signal to trade from your trading system, then simply don't open any trade order on that day, it might mean the difference between keeping your trading capital in your account balance the same or making a trading loss that day. In trading the first priority is always to preserve trading capital - rather than making profits, making profits should always come in second. As a trader always understand that. Your trading capital is your weapon - how will you fight if you lose your weapon? - But as long as you have your weapon you can always fight. That is the trading psychology that you should have as a trader.

Do Not Fall In Love With Your Trades

Are you focused on "Executing Trades?" or are you "Becoming Emotionally Attached to the Market!!!"? Make a definitive choice: Do you intend to EXECUTE TRADES - PLACING BUY AND SELL ORDERS, OPENING AND SUBSEQUENTLY CLOSING POSITIONS - or do you desire to FORM AN AFFECTION FOR YOUR TRADES? The Forex market is utterly indifferent to your personal sentiments or which currency pair you opt to buy or sell: THE MARKET IS INVARIABLY CORRECT. There is a song lyric stating "COMPUTER LOVING IS NOT FOR ME" - note the spelling: LOV, not LOVE. Here at the Trade Forex Trading Website, "TRADE LOVING" is not our philosophy, nor is it for our Traders. Learn this principle!

Don't marry your open trade positions, (Even for the position trader, "especially for the position trader" - when its time to execute trade close - Execute with the precision of a Soldier.). The reason/explanation why trading with a trading plan is recommended is because most of the objective market analysis is made prior to and before a trade position is opened and executed. Once a trader opens a trade - and is in an open trade position already, they tend to analyze the market price movements much more differently in the hopes that the market and the prices in general will move in a direction that is favorable to their trade instead of objectively looking at and analyzing the factors that might have turned and changed against their initial market analysis. Hard to say but, Those traders with a losing trade position tend to get married their trade position, which then causes them to disregard the fact that all the market signs and market signals point towards continued trading losses. Learn to always close positions - if you make the wrong call CUT YOUR LOSSES EARLY is the mindset and trading psychology that you as a trader should always have. Live to fight/trade another day - Protect your capital - SOLDIER - "THAT'S AN ORDER".

Never over trade

Over trading is quite a common mistake in online trading. Traders open high leveraged trades - by opening large currency trade positions larger than what their account balance can allow - according to Money Management Rules and Guidelines.

Utilizing excessively high leverage by entering trade positions significantly larger than your usual scale exposes you, the trader, to considerable jeopardy, often resulting in poor trade decisions. Always maintain your utilized leverage at below 10% of your total account capital.

As a trader, it's important to stay emotionally detached from the market and the excitement that its fluctuations may generate.

Keep emotions out of trades. Stay neutral in all decisions.

Skip constant price checks all day unless you scalp trades. Watching ticks non-stop often leads to bad choices from greed or fear.

While the reality is acknowledged by most traders, in the heat of actual market execution, they frequently revert to the same flawed practice: opening new trades counter to the established, real-time market trend solely to bring down the average entry price of their existing positions. The consequence is that the initial trade, which might already be hundreds of pips away from the current price, continues to move against them, now compounded by the newly added trades. On the newer MetaTrader 5 platform, succeeding MT4, a mechanism known as NETTING is incorporated. Netting functions by aggregating all prior open positions for the identical currency pair with any newly entered ones, calculating a single averaged opening price for all of them, and presenting this as just one consolidated trade. Thus, the trade entry point displayed on the chart appears as a single level (the average price), effectively treating them as one single open transaction. Consequently, while users of the latest MT5 platform might not immediately see the distinct large loss of their very first trade, all positions are factored into a single averaged figure visible on their trading interface - this is "Netting."

Currency trading can surprise you. Even skilled traders fail in Forex sometimes. It is not always from lack of skill or years of practice. Those with deep knowledge and experience still lose. Often, greed and ignoring market psychology cause it. Greed shows disrespect to Forex psychology. Skip greed in trades. Keep emotions out.

This science of Forex psychology is very important both for beginners as well as seasoned experienced traders. Psychology teaches and trains you as a trader how to master your emotions when trading the online markets. When you're angry you as a trader forgets about everything which you learned here at Trade Forex Trading Website. You forget about technical indicators. You forget about economic indicators/fundamental data reports. You forget about the market forces and other factors that influence the market price movements. All it is that you can remember is that you as a trader you need to earn money. And not only that, but you want to make and earn that money quickly. But you totally forget about technical analysis and the trading rules of your forex trading system (Do you even have a forex trading system? - How Do I Create and Write a FX System?) - Back to our topic, you forget about your trading system and your trading plan. On the other extreme side, When you get too excited you can't make justifiable and reasonable trade decisions. Thus, because you are over-excited you open positions and trades not because your currency trading strategy suggests so, but you open many trades because you want (Or is it need? - You Choose) to become a Forex millionaire. Some traders even go to the extent of picturing in their minds flashy cars and big houses, like the ones they saw in the latest music videos featuring that mega pop star including even that particular big car the mega super star was driving, that they'll buy after making large wins - that mostly never happens.

Traders need trading psychology and market psychology more. Focus on your trading plan. Write down your trading psychology in the plan's market psychology part. Few people talk about trading psychology. Traders often hunt for a working system or strategy. A good system matters a lot. But don't ignore the mental side of forex trading or other hurdles that affect your results, good or bad.

Stick to a trade strategy when trading the market so as to block out the market noise that is caused by short term factors and short-term aspects which can affect the long-term profitability of your trading strategy. Observe what the market is telling you - Don't ignore what the market is telling you. Look at what the trading charts are telling and showing you - follow that all the time, THE MARKET IS ALWAYS RIGHT, Remember What They Say - "THE CUSTOMER IS ALWAYS RIGHT" for us traders - "THE MARKET IS ALWAYS RIGHT" - Never forget, whether you are trading Forex, Stocks, Stock Indices, Metals(Silver and Gold) or CFDs - Whichever Market You Are Trading - "THE MARKET IS ALWAYS RIGHT" - Never Forget.

A popular trading adage emphasizes that "the trend is your friend." Always pay attention to what charts are indicating.

Finally, conduct thorough backtesting and adjustments on your trading analysis of the charts to enhance and improve your trading strategy.

The Psychology of Forex Trading is very useful concept in controlling trading emotions. Emotions are very powerful forces in any investment or trading market. Any decision involving money - tends to become highly charged emotionally. This is why all traders and investors of this and other markets should have a good trade strategy.

If a trader uses a good trading system correctly and sticks to it, they should consistently make decent profits over time, so make sure you manage your feelings, study the market, use good market psychology, and follow your trading plan, and things will work out well in the end.

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