The psychology of forex trading is a big topic. It is often psychological psychology, not a lack of academic knowledge or skill in application, that is the primary originator of trader errors. Mistakes are constantly being repeated by financial traders from different national, cultural and social backgrounds, which indicates that the common traits we have as human beings lie at the root of those mistakes.
This common feature is fear, which in turn creates a "fight or flight" response in humans. Unfortunately, it is this fight, fight or flight reaction that can cause many traders to fall. We cannot change what we have evolved to feel over millions of years, but we can change the way we deal with these feelings, by studying the psychology of successful forex traders and then applying what we have learned. Today, we will look at how we act and respond to trading situations from the point of view of the psychology of Forex trading.
The effect of emotions on the psychology of the trader
We are all affected by different feelings in our daily life, and the same is the case when trading, each of us feels feelings according to the nature of the situation and how our trading takes place, positive or negative. Some of the strongest feelings and emotions that influence the psychology of decision-making are fear, greed, anger, and happiness.
The effect of fear on the psychology of the trader
Fear can be a factor limiting your capabilities and behavior in trading operations. Naturally, your brain will want to find the safest option to ensure it lasts. In terms of trading, this means that if the trade looks like you're going to lose money, it's natural instinct to pull out of the trade, so you don't incur further losses.
However, it can steer you away from your carefully planned trading strategy. Even worse, it may cause you to make hasty decisions, hoping to reverse that losing trade and open a new one in the opposite direction of the first, for example, causing you to lose a lot more money than you would have if you let it go according to plan. Instead of focusing on the long-term plan, your mind wants to focus on getting the best out of this losing situation in the short term.
Understanding the role of psychology in forex trading will help you eliminate the feeling of fear from your decision-making processes. Realizing your fear will instantly strengthen you and awaken your focus, whether you are a trader or an individual. It will also allow you to re-establish control over the psychology of logic and reason, which is your ultimate goal.
The result of greed in trading
Greed is one of the most common feelings of the trader that causes him to lose money, and to control himself and the plan set for his deals, and the opposite of his expectations of excessive profit may reverse the situation and lose money because of keeping up with the feeling of greed. Many traders think that after the trade reaches a point where it became profitable, this means that it will continue to profit more and more. This does not have to be correct, but rather it means that your strategy was successful and you have to be satisfied with that. And they do not realize the new traders or even the old ones, the feeling of greed does not exclude the experienced, that the market can reverse at any moment and change its direction. In this case, your feeling of greed will tempt you that the results will be better, but as we said earlier, it is not a condition that this be true! Control your emotions and don't let them influence the psychology of your trading decisions.
Anger and its effect on trading
You may get angry if one of your trades ends in a loss after it was profitable. Has this happened to you before? And perhaps you began to rush in the desire to compensate for this loss and immediately search for new deals to recover your lost money. Stand there! Take a break Leave your device and leave the trading platform, meet friends or spend time with family clear your mind and then come back to the platformTrade and develop new strategies. Anger causes reactions that make you make hasty decisions based on emotions, not arguments and evidence. Leave the trading platform for several days if necessary.
happine
The most beautiful thing about trading is that you close a winning trade and get its profits in your total balance. The opposite of what greed does when trading! The feeling of happiness from obtaining the expected results is something that you should appreciate well, and not make it work against you. What we mean here is that it should not push you to trade repeatedly thinking that all your deals will end in profit and the opposite may happen. Stay alert and focus on keeping your psychology free from deceptive feelings.ss