Trading psychology is a very important part of the financial market. It is as important as having knowledge of the current market. Trading psychology is the attitude of a trader and how they control the emotions that they feel when trading. Having a rational decision is better than letting your emotions do all the thinking for your actions.
There are different emotions that trader encounters but there are 4 main emotions that greatly affect trader. These are Fear, Anger, Greed, and Impatience.
Fear – tends to liquidate their positions quickly missing out on great profit opportunities.
Anger – being enraged when the market goes against your desired outcome. It makes a trader want to enter the market quickly hoping to earn the money back quickly.
Impatience – has the mentality of getting rich quickly. Small wins don’t matter, all that matters for a trader who is impatient are big wins which is why they tend to put in more money not thinking about the possible consequences.
Greed – this emotion is very common. The feeling of earning a profit is a temptation to keep entering a trade without sticking to a plan.
Trader tends to sell their trading positions early when they are feeling fearful. This causes them to miss on potential profits. This causes them to feel anger and enter a new trade on impulse because of the missed profit even if the market is not favorable.
Impatience and greed usually go hand in hand when people trade forex. Traders who succumb to these emotions want to get their profit quickly and in huge amounts. They basically want to rush things and tend to enter the market without paying attention to their strategy which usually leads to a negative result.
Every trader should practice how to control their emotions and what actions to do for every scenario that may happen while trading. Learning how to handle emotions and being prepared with a strategy avoids being overwhelmed even if the market is unfavorable.
Why is trader mindset important?
Trading forex requires skill sets that allow them to be prepared for whatever happens with their trades. Having good trading knowledge and a trading plan is crucial in ones trading success.
However, trading psychology is equally as important. Each trader handles and reacts differently to various outcomes when they trade forex. How a trader handles these situations emotionally can make or break their trading goals. Even if they are well equipped with research and knowledge, letting emotions do all the thinking will eventually have a negative result.
Controlling emotions can improve the odds of better trading results or at least minimize risks and potential losses. The forex market is very volatile and having a clear mind is required to make quick decisions.