Trading Psychology: How to Get Into the Mindset of a Successful Trader

Trading Psychology: How to Get Into the Mindset of a Successful Trader

Once you start trading just because you “feel like it” or because you “sort of” see your trading edge…you kick off a roller coaster of emotional trading that can be very hard to stop. Don’t start over trading and you will likely not become an emotional Forex trader. What does being “flexible” mean for forex traders and what habits can we learn to develop trading flexibility? Winning forex traders learn from failure, don’t care if they look bad and aren’t afraid to take risks.

Emotions are can wreck your control if you let doubt and fear live freely. However, a well designed trading plan will assist you to stay focused and trade profitably without being sidetracked by your gut feelings. Trading with a robust plan lowers risks and assists you in keeping your emotions under control.

At some point, you may suffer a bad loss or a burn through a substantial portion of your trading capital. There is a temptation after a big loss to try and get your investment back with the next trade.

This is why you should adhere to the aforementioned principles of Forex risk management. When a trader realises their mistake, they need to leave the market, taking the smallest loss possible. Waiting too long may cause the trader to end up losing substantial capital. Once out, traders need to be patient and re-enter the market when a genuine opportunity presents itself.

Trade like a winner… in your own way and on your own path. Losing is inevitable in forex trading but instead of dumping one strategy after another, you should look at your losses closer to figure out how to improve. When traders cross over from demo to live trading, they usually believe that their demo results can be easily replicated on a real account. Here are three things that could challenge that belief.

We’ve done the research and found out that traders who are feel under pressure and cannot manage their stress are less successful. Review your trades on a regular basis with a trading journal that will help you understand what you did right, and what you can improve. For instance, if you go long on the EUR/USD and the USD/CHF, you can expect both currency pairs to evolve in opposite directions, which is almost like having no trading position in your account. Knowing about Forex correlations will help you better control your Forex portfolio’s exposure by reducing the overall risks. Just because you’ve made a few winning trades doesn’t mean that the next one is going to be profitable.

However, you can increase the upside potential of your trades without adding more risk by scaling into your positions. Add to your winners as the trade is working in your favor.

For example, you can enter a long order on EUR/USD, but you end up losing 50 pips. Frustrated, you decide to double your position size on the next trade so that you can recoup your initial loss. However, the trade goes contrary to your expectations again, causing further damage to the trading account. It will be easy to open an even bigger position now, because the market “owes” you money and you want to take “your” money back. Secondly, because you become desperate to recoup the losses, revenge trading forces you to open trades with larger position sizes.

Most professional traders risk 1% or less of their account. You can manage your Forex risks much better when paying closer attention to the currency correlation, especially when it comes toForex scalping. Whenever you are engaging a scalping strategy, you have to maximise your gains over a short period of time. This can only be achieved by not trapping your margins in the opposite-correlated assets. Managing your risk is vital if you want to succeed as a Forex trader.

Traders would also be wise to consider setting limits on the amount they are willing to win or lose in a day. If the profit target is hit, they take the money and run, and if losing trades hit a predetermined limit, they fold up their tent and go home, preventing further losses and living to trade another day. Revenge – Traders experience a feeling of wanting “revenge” on the market when they suffer a losing trade that they were “sure” would work out.

This is simple with the free, MetaTrader Supreme Edition add-on for MetaTrader 4 and 5. If you trade frequently, there's another tool you can use for managing your Forex risk.

Nial Fuller is a Professional Trader & Author who is considered ‘The Authority’ on Price Action Trading. He has a monthly readership of 250,000+ traders and has taught 20,000+ students since 2008. In 2016, Nial won the Million DollarTrader Competition.Checkout Nial's Professional Trading Course here. Get 50% Off Nial Fuller's Price Action Forex Trading Course, Daily Trade Ideas Newsletter & Live Trade Setups Forum - Click Here For More Info. You need to know what your trading strategy (trading edge) is and you need to master it.

Control your emotions and be patient enough to wait for your trade setups to be confirmed before opening/closing a position. These tips are just the cornerstone to better manage your risk – as you research further, you’ll find other Forex trading tools and techniques for beginners you can use to improve your trading strategy. When using leverage, your profits can be magnified quickly, but remember that the same applies to your losses. This is why you need to understand how leverage and margin trading work, as well as how they impact your overall performance and trading. Knowing about risk/reward ratio (RRR) will definitely improve your chances of becoming profitable in the long run, setting limit orders (stop-loss and take-profit) that protect your capital.

Consider only using leverage when you have a clear understanding of the potential losses. If you do, you will not suffer major losses to your portfolio - and you can avoid being on the wrong side of the market.

Consistency – If you are even considering becoming a full-time trader, make sure you are trading consistently. This will allow you to set realistic expectations for the future.