Of course trading psychology plays a signicifant part for you. After all, you can’t expect to be a successful trader without having rational thinking and emotional control. Forex must be treated like a business, especially if you want to generate a steady income. If you treat it like a casino, forget all what we talked about so far, flip a coin – heads is Buy, tail is Sell – and hope you win. If you didn’t win, repeat the procedure, but this time double the amount risked. It is the easiest and fastest way to lose your money in Forex and, of course you don’t need to read and learn about support and resistance, indicators or money management.
Trading Psychology – Money Management Tips
Since I don’t think you are reading this because you want to gamble, we are going to speak about the importance of money management and trading psychology in Forex, just like in any other business. First of all, you must understand that this is not a “get rich quick” game and you can’t trade for a month and become a millionaire. Instead, you must apply sound money management techniques that will keep you from blowing your account.
First rule and it’s an important one: don’t invest money until you are constantly successful on a demo account. Even when you are successful on demo, remember that trading your own, real money on a live account will be much different than on demo. This happens because trading on a demo account has no psychological impact. You will never feel the fear of losing money when trading virtual money and as a direct consequence of that, you will make better decisions because you are not influenced by fear. This way, you can develop trading psychology that’s sharp and ready to deliver. So trading demo and being successful at it doesn’t mean you will have the same results on a real account, but it’s an important step that every trader must take before investing real monpey and it prepares you for the things to come.
Never invest more than you afford to lose. Don’t put your last penny into a trading account hoping that you’ll get rich and brag to your friends about trading the markets and knowing where they go. That’s not the way to go and it’s not the right state of mind. Instead, you should invest a small amount. Of course, what “small amount” means differs from person to person, but I consider it to be the amount that lets you sleep at night if it’s gone; whatever sum that if lost will not cause you a big discomfort.
Know that you are going to lose some and win some, but in the long run, if you follow the rules, you will succeed. The essential trait of any trading psychology is understanding that there are always 2 outcomes. Imagine the greatest boxer of all time entering the ring to defend his belt. No matter how good he is and how confident that he will win, he knows he will get punched in the face and doesn’t expect to dodge all the punches. His goal is not dodging everything, but delivering more damage than his opponent, making his punches count and not absorbing too much damage when he gets hit. The same way in Forex, we must understand that we will suffer inherent losses, but we must make the wins bigger than the losses. Also we must learn to control the losses by using a stop loss. This way, we know how much we can lose and accept that potential loss.
Never risk more than 2% of your account. You probably heard this one before and that’s good because when you read something over and over, it gets printed into your brain. We will talk more about the 2% rule in part 2 of this article. Keep reading over Trading Psychology and Money Management Trading Psychology.
Also, try to get on first basis with these awesome 10 trading strategies to get your Forex career going.