Trading and earning from Forex and Stock markets is not only about the knowledge and understanding of the fundamentals or technical analysis. The trading psychology plays a vital role in the success or failure in our trading. when we say trading psychology, it means our individual psychological traits and a possible lack on emotions while we are trading and also an understanding of mass psychology.
Many begginers ask the question "How to trade Forex?" and "How to learn Forex trading?". Trading is an art in itself and it's not just the question that how to make money with money or how to earn more with less amount of money. Even with a great knowledge and understanding of the market, you may find yourself continuously losing in your trades. You may know that the market will go up and you buy. Instead of going up the market starts moving down your stop-loss order closes your trade. The next minute you see that the market starts moving up, the way you had analyzed. You end up with a loss in the previous trade and now you are worried to buy again though still you have the feeling that it will continue to move up. The price keeps on moving up and now we are just frustrated about our not taking an action of entering the market and also the unnecessary loss (because we put the stop-loss too close) in the previous trade. We just buy a bigger position out to make up. This time we put the stop-loss order too far. The market had already moved up quite a bit and as soon as we bought it does a free fall. Our stop-loss was too far and Oooops!!!
The emotional feelings, fear, greed and many times the addiction to trade can just kill what we have in terms of market knowledge. Psychological factors and sentiments greatly affect the performance and hence the results because of the dynamics of the market. And a perfect trading discipline is required for ultimate success.
When we talk about trading psychology, it’s about both, the mass psychology of the traders around the globe and our individual psychology.
We do not have any control over the mass psychology but an awareness and understanding of it can help in what decisions we take at what times and situations. One example of mass psychology in the normal times is given in another article on the page by the name “Number Psychology”. Other examples can be seen in panic situations. The mass panic can fail all our analysis – weather fundamental or technical. In this section we will be talking about individual trading psychology.
Let’s start with the most common mistakes which can either wipe our profits or prevent us from going into profits ever. We all can make one of these common mistakes in our trading career once or even more than once. The killer of a trading career is to make one or more of these mistakes as a pattern. To kill our pattern, we need to understand our pattern and this can only be done with the thinking and analysis with completely open mind as knowing ourselves, many times, prove to be more difficult than understanding others . We need to understand ourselves first to understand our actions and reactions and then to control the undesirable actions and reactions.
Whatever our psychological traits and whatever is the mass psychology, we all at times, may make some common mistakes. A strict control to avoid this is what the trading discipline is all about. Bringing discipline in our trading career is an a very important aspect and the foundation stone. Let us check what are the factors which need the attention for improving the trading discipline:
A strict discipline is must for successful trading and for that understanding our psychological and personal traits is the first step.
Please also check the common Trading Mistakes.