Saturday, September 23, 2017

My 100th Post – Tips On Forex Trading Psychology

March 22, 2011 by  
Filed under Forex FAQ & Latest Post

In today forex faq, I will be sharing with you information on the trading psychology.

Below is the question from one of our fellow traders:

Good evening! The question of psychology. As you yourself are trading and you deal with stress. Do you have any ways to cope. Sincerely.

In fact, trading forex is pretty stressful at times especially when you are new and do not have any idea how to get started. You will feel stressful when you are looking for entry as you are not sure where to get in. You are even more stressful when you enter a position and see the price moving against you.

In this article, I am going to share with you some of the ways I use to deal with the stress in trading.

1) Pick a reliable trading strategy – the reason why most traders are very stressful is because they do not have a reliable forex trading strategy. A reliable strategy need not win 100% of the time as it is impossible to have any strategy that wins 100% of the time.

What you need is to stick to learning one strategy and practice it on a demo account until you are able to win at least 65 to 70% of the time. This is what I call a reliable trading strategy. With a reliable trading strategy, it will definitely help to relief some of the stress you face in trading.

2) Be consistent in your application – I know some traders who have a good trading strategy but they lose because they do not follow their strategy to death. It is very important for a trader to be able to stick to the plan. This is because of the law of big numbers which means that you need to trade enough trades to achieve the probability that your strategy has.

You may have a strategy that wins 70% of the time, however when you are trading with it for the first 10 times, you may lose 7 to 8 times with it. Does that means that this strategy is lousy?

It fact, if you continue to trade with it for 100 times, you will find that you only lose 30 trades with it and that is why it has a winning percentage of 70%. The problem with most new traders is because they are impatient with their strategy and decided to change when they have one or two losing trades. The key to success in trading is CONSISTENCY.

That is why I often ask you to trade in a demo with a particular strategy as this is how you can know the winning percentage of the strategy without losing your hard earned money.

3) Let your profit run and cut short the loss – The next stress that traders tend to face is when they see their position losing money. The common action that new traders will take is to adjust their stop loss hoping that the market will move in their favour soon which is why most traders lose their capital within the first few week.

In order to prevent such a problem, I make it a habit to place a position and then have my stop loss and target profit set. Once it is done, I will log off from my computer so that I do not meddle with the strategy. This method will help to relieve most of your trading stress.

I hope that the above methods can help you to cope with your stress. If you guys have anything to share about trading psychology, do feel free to give your comment below.

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