Forex Trading Psychology: 3 Insider Tips for Success

You cannot talk about Forex Trading without talking about psychology. Traders, in fact, are called upon to manage their psychological sphere as effectively as possible, since it has an intense impact on performance. The reason is very simple: trading is a stressful activity, given the stakes, and stress makes you vulnerable to emotions. These, in turn, reduce clarity and the ability to make decisions. The specialized literature deals in depth with the relationship between psychology and trading. However, it is good to add something to what, in various ways, has been said and described. It is good, at this point, to recap the best tips that, from a psychological point of view, a trader should follow.

Look serenely at the concept of defeat

This concept proceeds from one of the most impactful truths that, sooner or later, all traders experience firsthand. All traders lose. That's right. Even the most experienced trader, even those who have objectively enriched themselves thanks to trading, experience defeat with a certain regularity. Looking at the issue from another point of view, it can therefore be stated that it is absolutely not possible to always win. What makes the difference, obviously, is how many times you win and how many times you lose. Regardless of this, defeat is a (unfortunately faithful) companion of all traders. Therefore, it is good, so to speak, to build a good relationship with it. This means, first of all, accepting it as something inevitable, physiological. It also and above all means not getting discouraged when a trade does not go as hoped, but rather considering this event as part of the game. Being aware of defeat means, however, taking all precautions not only to avoid it but also and above all to limit its effects. Hence the need to practice good Money Management and good Risk Management. For example, setting effective stop losses and developing a safe position sizing. In this way, if defeat must be, it will not have a dramatic impact on capital.

Use a Trading System

The Trading System is a set of rules that, covering the widest possible range of situations, tells the trader what to do and how to do it, in all phases of the trading activity: analysis, capital protection, operations. The Trading System can be managed manually or with the support of software, although in this case one falls, at least in most cases, into automatic trading. Manual or automatic, the Trading System is also and above all a tool for managing the psychological sphere. This phrase might make one turn up their nose, since the term recalls elements of a technical nature. Yet it is precisely true: those who follow a Trading System better resist emotional pressure. Provided, of course, that the Trading System in question is well developed and that the trader behaves in a disciplined manner. The reason is simple. If it is true that the Trading System is a set of rules, then it acts a bit like the classic instruction booklet. In this way the trader, not having to decide anything at the moment of maximum emotional pressure (the operation), neutralizes the impact of emotions. The stress remains, of course, as well as the anxiety and fear of making mistakes. However, these cannot do damage as everything, or almost everything, has already been decided, the games have already been played.

Adopt the ant style

This advice might seem strange to most. What do ants have to do with Forex Trading? It is obvious that, in this case, the ant has been borrowed to draw an allegory. The ant, in fact, in the collective imagination is opposed to the cicada. The ant is, so to speak, reflective, does not take steps longer than its leg, is slow yes but inexorable, manages to handle even the most negative scenarios (e.g. winter). Here, the trader should behave exactly like the ant. They should act cautiously, without taking unnecessary risks or risks that are not somehow calculated. They must think of the worst. Specifically, they must trade with as scientific an approach as possible (e.g. with the Trading System), they must practice good money management, they must limit the impact of (presumed) defeats with appropriate maneuvers. It is not an easy behavior to adopt. To compromise good intentions there is precisely the psychological sphere, which translates into a feeling of revenge or, on the contrary, of fear when things go wrong; or in a tendency to recklessness when things go well. Therefore, curb your instincts, even by means of the resources described in this article (again, the Trading System) and behave like the most classic of ants.