Market Psychology

Forex School – 2nd Lesson

Most trader think that profitable forex strategy and risk management are enough for successful trade. But it’s not true. The long-term financial results of the trader are mostly determined by mental condition. It’s not enough to acquire and develop a profitable forex strategy. The rules of the strategy have to be observed in all circumstances, but that is not so easy.

Mental condition and concentration

Sometimes every trader makes a mistake. Beginners often, professionals rarely. Mistakes made during trading are not because of a badly-planned trading strategy, however, because of the not proper mental condition and the lack of concentration.

If good things happen with us, then our affection is also fine. In such terms, there are bigger chances to make succesful trade. When bad things happen with us, these can make our affection more unstable. Several feelings and other factors can attract negative impact to our mental condition and concentration: family problems, work difficulties, financial matters, street noise, bad luck streak or anything else which is hurtful and annoying. We have to learn to handle these problems, because in a state of tiredness and bad mood, there is greater probability of making mistakes. With proper mental readiness, it is easier to avoid mistakes.

In the process of trading, the trader have to control the mental condition and concentrate only on working. The good mental condition and concentration help trader both in the position opening and position closing.

If you are not in a good mental condition do not trade. Instead of working, stand up in front of your computer, make sports, walk, but don’t risk your money. Start working only if you feel that you are able mentally to trade. In the long run, only those can be successful who can control emotions.

It is useless if you know the profession and you are in a good mental condition, if you don’t concentrate. The lack of concentration leads to mistakes, and mistakes casue losses. While working, concentrate on the tasks of trading. If you do so, there is a bigger chance that you will be a profitable trader.

Tiredly and sleepy, everybody is more inattentive. Inattention costs money on the market. Maybe the lack of sleep and rest are those factors which are the most difficult to control. In the 21st century, it is hard to solve, but try to trade in relax condition.

Calmness, patience and discipline

During trading always be calm, patient and disciplined. These 3 features help you to trade in a good mental condition. Calm, patience and discipline greatly improve concentration.

Calmness
During trading try to close all those factors that confuse your peace. Try to ignore your problems and troublesome worries during working hours. In calm affection, you make less mistakes and you can trade more efficiently. Don’t make a decision because of passion on the market, because as a result of this you can lose a significant portion of your capital in a bad mental condition.

Patience
Chart mostly doesn’t give good buying/selling opportunities. However, sometimes it gives. The professional trader looks for such opportunities. Profitable situations don’t come so often that we want. We have to wait them patiently. Don’t hurry market entry as you can easily get into a loss situation.

Discipline
The good trader continually trains itself. Reading books related to trading and studying technical analizes. Newer knowledge are continuously integrated into its trading strategy. This built forex strategy have to be executed in a disciplined way. Whatever is the temptation, it is allowed to get into the market only with a built strategy. Don’t differ from this forex strategy. To achieve this a great discipline is needed. Undisciplined investors usually quickly lose their money.

Healthy lifestyle

Sport
Sport stimulates the circulation of blood, dissolves stress and gives self-confidence. Those people who are making sports can concentrate better on their tasks. You don’t have to be a world champion athlete, but if you have the chance, make sports every day at least for 15 minutes. The regular sport helps sleeping well, when relaxed you can do better trading.

Good nutrition
If you can, try to assemble for yourself a menu which is rich in vitamins and varied. Healthy meals have a benevolent impact on both your body and mental condition. This helps your work largely.

Greed and fear

The market is controlled by two main feelings: greed and fear. The too greedy trader tries to make a profit in every situation, even when the market doesn’t give the opportunity. In general, such trader becomes the victim of his own greed, so gets into too many loss situations. The too shy trader is the opposite of this. Yet, he waits for better and better trading situations. Beacuse of this, lots of profitable possibilities are left behind. Doesn’t try to maximize his profit even when he has the chance. The best solution is that when the trader neither too greed nor too shy, but makes reasonable decisions.

On the market there are two things, which operate in a different way than in the real world. Your attitude to these 2 things determines basically, what kind of trader you become and will you be able to make reasonable decisions.

1: On market, those are successful who have small ego. Soon admit if made a mistake and missed the market direction. In such situation, makes reasonable decisions and allows itself just small losses. Despite, in profitable position, tries to maximize its profit. Stops loss in time, on the other hand gains profit.
2: It has to be accepted that the investor is not a diviner. The good investor tries to follow the trend. In case of upward trend, if an instrument is more expensive then he buys this and in case of downward trend, sells this.

If you think about it, in real life it works inversely. In the real world, nobody wants to admit when made a mistake and no one wants to buy at high prices or sell at low prices. However, on the market you need exactly these to make a profit in long term. Do avoid greed and fear and other negative conditions (tiredness, bad mood, impatience, etc.) to determine your decisions, rather in all circumstances try to make reasonable decisions. A significant proportion of traders are unable to be disciplined in critical situations. This has especially mental reasons. Only 10% of traders are profitable.

If you can handle the unpredictability of the market, then get a huge advantage compared to a great part of market participants. It is a hard task, but it can be done.

Profit and loss

It is easy to accept profit. To accept loss is more difficult. Unfortunately, loss is an inevitable part of trading. When somebody can’t bear that besides profitable positions there are unprofitable positions, won’t be a successful trader.

There is no forex strategy which is 100% efficiently. It is not worth searching it, because it is a meaningless activity. Professional investors know it and handle losses calmly, considere it a natural part of trading. It is worth to learn this mentality from them.

Bad Luck Streak
A special form of loss is the bad luck streak. In such times, loss positions come in series which burden the trader very much mentally. Unfortunately, these loss periods are also parts of the life of the trader. Bad luck streak has to be accepted calmly and without emotions. If the investor applies a proper risk management, then after more serious loss periods has a good chance to return and make profit again.

When you lose, don’t try to regain your money immediately. This is one of the most common mistakes that are made by traders. In such situations, you can lose even all of your capital.

Self-confidence

Self-confidence is inevitable in trading. You can gain proper self-confidence in the forex business, if you know profitable forex strategies and able to apply these. Besides, know and keep the most important rules of risk management and prepare mentally for trading. On the market, this gives the greatest self-confidence.

Trading comes with stress. Every person handles stress differently. Someone easier, others harder. In trade, the lack of professional knowledge causes stress mostly. Uncertain trader becomes more easily nervous and stressful. Intensive stress has bad impact on achievement.

The secure professional knowledge increases your self-confidence and reduces stress that affects you during trading. This helps your work largely in the long run.

Market Psychology – Summary

The mental preparedness is inevitable to be a successful trader. You have to dominate your emotions in the hardest situations and make decisions in a cool-headed way. During working you have to concentrate, besides wait with patience for the profitable market situations. Always keep the rules of your forex strategy. All this seems to be a hard task, but with discipline and willpower it is not impossible.