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Why does the brain allow that to happen, watch returns disappear into losses due to greed? Whether in shares or FX the same principles apply. Avoid letting psychology get the better.

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Importance of Psychology

 

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Those who begin their trading journey often dismiss the importance of psychology. It drives the decisions we make, the ability to make the right call and ultimately, separates the successful from the unsuccessful. Rules and strategies exist for a reason yet sticking to them can be hard. Removing rules and strategies pushes trading to become gambling and why a large portion of the industry loses money.

It is easy to turn focus only on whether profit is gained. Lack of planning can result in inconsistency, where consistency is the key. Why make several little wins only to allow one large loss to wipe all that out? It happens all the time. 

Many experienced traders try to avoid chasing losses. Being stubborn to turn a losing trade can wipe out capital. Why risk for it to become a bigger loss in the hope it will 'come back?' If a trade was not successful it does not always mean it was a bad trade. The market sometimes decides to do strange things. Many trade strategies are correct with just the timing to enter requiring refinement.

Keeping trading journals to record trades, outcomes and rules/decisions allows traders to learn from mistakes while recognising what strategies have been working. A strategy that works for USD/JPY may not necessarily work for FTSE100 or EUR/GBP. 

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• 'Avoid following the herd to slaughter.' Everyone loves to talk about their wins and rarely their losses. The fear of missing out is powerful and should be controlled.

• Successful traders avoid trading the noise. Trade what your strategy says, not what you heard the man on the bus tell his friend.

Like electricity, most people are programmed to take the path of least resistance. We will often avoid new things and choose known comfort to avoid the risk of failing or being hurt.

Shortcuts need to be eliminated as a hope to immediate riches. Not using strategy, planning or risk management could be a costly mistake. 

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The get rich trade

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Everybody dreams of the Hail Mary trade. It's natural, because technically it's possible. To dream big is always encouraged given the path to get there isn't filled with shortcuts.

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Trading will always involve wins and losses and no trader gets it right 100% of the time. Getting consistent smaller wins is better than making $1,000 one time and losing $1,500 the next. Know your limits and in time as capital grows with experience, average profits are also expected grow.

It is no secret that a large portion of people who get involved with trading forex lose money. Undisciplined wins often grow into greed, a common cause of losses.

The right mentality & affordability

Winning the psychological battle is part of the battle. Trading is not a profession for everyone. It can be a wonderful tool for making money or a dangerous way to induce high levels of stress. Traders should never use money they cannot afford to lose. Until a large enough capital is built to live off, relying on trading to pay bills or other expenses can carry a heavy burden and also affect trade decisions.

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Mindset

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People enjoy doing things they are good at. It takes thousands of hours of practice to master something and many people don’t carry the drive and ambition to do the hard work to get there. Unfortunately no shortcuts and substitutes exist to hard work. 

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Begin with knowing what is motivating or inspiring the choice to trade. Understanding why you're doing something in the first place is a great way to pick yourself back up when you find motivation lacking.

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• Can I be disciplined enough to learn new things and stick with it through the tough times?

• Do I believe I am capable of achieving more? Do I want and deserve more?

• Will I quit as soon as something doesn’t go my way and looks hard?

• Will the knowledge and extra cash flow benefit my life plans and goals?

• Do I want to change or improve my current life?

• Lastly and most importantly, can I do it?

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If a personality does not like losing or is a perfectionist, own the traits early and realise a part of trading is incurring losses. Have the appropriate mindset when embarking on the journey. If mastered, potential gains are endless.

 

• Volatility – Do I prefer high volatility with large fluctuations in price?

• Transparency – How important is it for me to know exactly how the price movement is being influenced?

• Reduced manipulation – Does a market as close as possible to being perfectly competitive matter?

• What are the different financial instruments used for trading and which suit best?

• Factors to analyse in order to place a trade – know what the influences are.

• Am I seeking a thrill of being in the markets or genuinely looking for an income source?