Trading Psychology
Introduction
Trading psychology is one of the most underrated aspects in forex trading, which new traders ignore frequently and thus end up amongst the losers. It is interesting to note that many institutional traders and investors sitting in big investment companies consider trading a combination of 80% psychology, 15% risk management, and 5% strategy/game plan.
A pleasant mindset during trading can help one in achieving consistency as there are no psychological barriers. To perform like a robot, a trader has to go through various emotional roller coasters. By learning about all the critical sentiments and responses that an investor must avoid, it is possible to increase your overall performance by a considerable margin.
What type of mindset should you have while you are trading?
The answer to this question comes from the list of emotions that should be avoided. Let us highlight a few and the detrimental outcomes of them.
Greed
Good trading psychology demands that a trader must free himself of all greed. While managing a position, it can be lucrative to get more profits, but this usually ends up in a reversal that eats the stop losses. A better approach, avoiding such a fate, would be to trail your stop loss as your trade moves in your favor and strictly follow your take profits.
Image 1: A trader finds an excellent opportunity for going on a potential price action setup on EUR/USD. As soon as the price reaches his exit point, greed overtakes his thoughts, and he moves his TP a little further. To his dismay, the market decides to reverse and takes him out on his SL.
FOMO
A trader has a fear of missing out on trades as he looks at the chart for potential setups. In his confusion, he presses the buy and sell buttons with no idea whatsoever behind the decision. Not wanting to miss out on a potential opportunity, the market participant enters at an unfavorable level, putting him at a loss.
Image 2: Spotting the oversold condition on RSI, a technical trader decides to enter a short position. However, at this point, the market has sprung too far from the original entry, highlighted by the red arrow. Fearing of missing out captivates him as he trades too late, resulting in a loss.
Euphoria
Euphoria is a god-like feeling of excitement when a trader lands on a series of wins or a single big hit. The huge adrenaline rush tricks him/her into taking more risks due to the belief that he will win the next one as well. Even if the investor grabs more wins, a time will come where a loss occurs that wipes away all of his savings.
Image 3: Feelings of euphoria are a major killer of a beginner's trading career. The results are detrimental and eventually lead to depression.
Depression
This feeling is familiar among traders who end up feeling lost and hopeless, even after a single wrong trade. They feel like their world has turned upside down, making them feel bad about themselves and losing confidence as a result. A prolonged feeling of depression can lead to various health problems.
Key points on managing your trading psychology
Managing your forex trading psychology is an easy task that may require some effort in the beginning. By following a few simple points, you can protect yourself in the fight between bulls and bears:
Keep to a trading plan and follow it strictly.
Note all you trading emotions on a piece of paper and try to remove them one by one.
Read books on day trading psychology.
Choose a good trading mentor who advises you on maintaining the best possible mindset.
Take breaks in between trading.
Only invest the amount of capital that you can afford to lose.
Use automated software such as Forex Copier and EAs for managing your trades.
Best Books about Trading Psychology
Over time, top investors and institutional traders have written books giving the best information on managing your mindset. Giving some of these a read would definitely help you in terms of trading psychology:
Trading in the Zone, by Mark Douglas
Trading Psychology 2.0, by Brett N. Steenbarger
The Daily Trading Coach: 101 Lessons for Becoming Your Own Trading Psychologist, by Brett N. Steenbarger
About Forex Copier
Forex Copier is an automated software that helps you copy your trades on the same or different PCs. It has two versions:
Forex Copier remote 2 for copying trades remotely from one MetaTrader® platform to another.
Forex Copier 3 copies trade between MetaTrader® platforms on similar PCs.
The copy trading software has many valuable features, including lot/risk management, price adjustments, order filtering, tweaking SL/TP, and emergency stops to help you get an easy edge in the industry. It is possible to diversify your trading accounts and brokers by distributing your equity over several portfolios and using the auto trade copier to copy positions from one account to all of the others. You can also choose to sell subscriptions to your signals and EAs to investors worldwide, with or without access to their login credentials.
The scope here is unlimited, as the Forex Copier can help gurus in teaching by sharing their executions. For traders on a losing streak, the mirror trading software offers a reverse mode that turns all incoming buys into sales and vice versa with modifications of the exit and entry points.
