Trading in the forex markets is dead simple. You simply sell high and buy low. It’s like taking candy from a baby. Yeah right. A few thousand dollars in the red later many traders have come to realize that their trading account is the candy and they are the crying baby from which the markets have taken the candy. Have you ever found yourself at this point?
Think about this, forex trading though complex does not have to be complicated. Successful traders keep it simple and can tell you (that is if you can get them to) how they trade, in less than 60 seconds.
Businessman having stress in the office
Guest post by tradewithferl.com
Trading Psychology
The term trading psychology has many definitions. To put it simply, it is the thing which causes many a trader to suddenly start losing trades and losing money whenever they step up from a demo account from which they were winning, to a funded trading account. Trading psychology is the bridge between mastering your trading plan and mastering what goes on in your head when you click the buy or sell button on a live trading platform.
The Trading Plan
The components of a good trading plan include:
(1) Educating yourself about the markets
(2) Risk management. Deciding ahead of time how much risk you will take in a given trade. How many losses can you absorb before blowing up your account?
(3) A tried and proven trading strategy that you have confidence in so that you do not throw it away when a trade does not go your way.
(4) Entry, exit, profit targets and stop loss.
Tips To Follow The Plan
So after getting the education, developing a trading methodology and sharpening their skills on a demo account, why is it so hard for so many traders to stick to the trading plan?
HINT- Take a look in the mirror!
How well do you know yourself? If you do not know yourself this is a good time to find out. Live trading can be stressful. How do you behave in stressful conditions? Here are a few ways
- -Overcome with emotion- A no go for trading. This will make you forget your trading plan altogether
- – Over confident-Many persons over estimate their abilities in trying circumstances. This can cause the trader to be greedy and end up giving up gains due to failure to close a trade.
- – Fearful- Another no go for trading. This can lead the trader to prematurely exiting a trade, against the teaching of his/her trading strategy, thereby leaving money on the table. When you are afraid, trading discipline is cast aside.
- – Angry and Revengeful-So you lost a few trades. You then trade just to get back at the market and try to recoup your losses. Do these trades you’re taking have anything to do with your treasured trading plan? (Can you recall ever hearing the term “TRADING PLAN”?)
And above all, what trading style most suits you? Are you an erratic, fast moving type of person? Maybe trading the one minute chart is just up your alley. Or are you more laid back and methodical? Should you consider trading the daily, weekly or range bound charts instead?
Having developed a sound trading plan, and having developed confidence in your charts and your broker, self-awareness goes a long way in bridging the gap between planning your trade and actually carrying out that plan.