Archive for the ‘Psychology’ Category

Traders psychology (A burnt child dreads the fire)

Monday, November 2nd, 2009

Trading psychology is the perception change that you go through once you are actively in the markets trading your own money. When trading on a demo account, it seems like it would be easy to make money and there seems to be no reason why you wouldn’t be able to start making money with a live account. Then, you make that first live trade and you start to feel indecisive about when to take profit, or cut your losses. You have just discovered the effects of trading psychology.

consistenttrader

Trading psychology can affect your judgment while you are trading. There are two emotions in particular have been the source of ruin for forex traders over the years. Those two emotions are fear and greed. Fear will cause you to either not make a trade when the opportunity arises, or to close a trade prematurely without giving it a chance to be profitable. Greed will cause you to make trades that are too large or too risky, while trying to make massive gains. Greed can also cause you to try to wait for the “last pip” of a move instead of being satisfied with a “good run”.

The best way to combat trouble and to beat your emotions with trading psychology is by making a trading plan and sticking to it. Use well thought out risk management and don’t get in over your head. Remember that mastering your emotions will allow you to seize the real profit from the markets while emotions are high for others. If you can master your emotions and follow good risk management practices, you can be a successful forex trader.