The Psychology of Traders

Developing the proper trading psychology is crucial if a trader is to have any trading successes. This is an area that many novice traders tend to overlook while they are educating themselves. Sad to say, there is no magic formula with which a trader can forgo having to develop the correct “Trader’s Mindset”. As mentioned earlier not having the proper “trader’s mindset” can result in a costly and negative experience with trading in Forex.

Nevertheless, before all else, we need to be able to recognize that the psychological aspect of trading is tantamount. For us to correct our shortcomings and minimize the losses that we suffer when we trade, we first need to know what is the problem and the issues surrounding the problem. Success in Forex trading is a combination of proper trading strategy, prudent money management appropriate capitalization and having the proper psychology. All these factors must work in synchronization in order for a Forex trader to be successful in his trading.

Some of the common psychological issues that a new trader will face are:

A fear of having to take a loss:

This is a result of a trader’s ego. In fact, this reason is the most common reason why Forex traders fear having to take a loss. As a result, they try to go against the market trends trying to beat the market.

Exiting a trade prematurely:

A novice trader will exit a market position prematurely mainly due to the fact that he lacks confidence. He exits his position before he should because he wishes to relieve himself of the anxiety of closing a market position.

Holding on to a losing position for too long:

This happens because a trader refuses to acknowledge that he made a mistake. He holds on to the losing position hoping things will turn around and correct his mistake. Again, this is due to ego.

Obsessive Trading:

Because of the thrill of making profits, traders can sometimes feel euphoria when they made a good trade. The danger is that it can also fuel an addictive need to seek this thrill with no thought of loss.

Feeling angry after a loss:

Traders feel this way because they think that they are being victimized by the market. They got into this situation due to the fact that they had unrealistic expectations in the first place.

Guilt feelings in making excessive profits:

Sometimes due to poor self-esteem, traders feel guilty when they make excessive profit. They believe that they don’t deserve the profits that they make thus limit themselves to how much they will make.

Over thinking or second guessing the trading strategy:

This is the result of wanting a “sure thing” in a world filled with uncertainties. Traders do this because they fail to understand losses are part and parcel of Forex trading. They choose to disregard that risk is inherent in any investment endeavors.

The human mind is the most difficult aspect of Forex trading to overcome. There is no short cut to this except through realization, and coming to terms that we all are human and are prone to mistakes. Once we can recognize this, we can begin to watch out for these “undesirable” mental blocks and take steps to eliminate them.