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Article Series:
Learn Forex Trading / Currency Trading Tips
Psychology
of Forex Market Trading
When it comes to trading on the Forex market,
winning is a matter of the mind rather than mind over matter.
Any trader who’s been in the game for any length of time will
tell you that psychology has a lot to do with both
your own performance on the trading floor and with the way that the
market is moving. Playing a winning hand depends on knowing
your own mind – and understanding the way that psychology moves
the market.
Studying the psychology of the market is nothing new. It doesn’t
take a genius to understand that any arena that rides and falls
on decisions made by people is going to be heavily influenced
by the minds of people. Few people take into account
all the various levels of mind games that motivate the market,
though. If you keep your eye on the way that psychology influences
others – including the mass psychology of the people that use
the currency on a daily basis – but neglect to know what moves
you, you’re going to end up hurting your own position. The
best Forex coaches will tell you that before you can really
become a successful trader, you have to know yourself and the
triggers that influence you. Knowing those will help you overcome
them or use them. Are you saying ‘Huh?” about now? Believe
me, I understand. I felt the same way the first time that someone
tried to explain how the mind games we play with ourselves
influence the trades and decisions that we make. Let me break
it down into more manageable pieces for you.
Anything involving winning or losing large sums of money becomes
emotionally charged.
All right. You’ve heard that playing the market is a mathematical
game. Plug in the right numbers, make the right calculations
and you’ll come out ahead. So why is it that so many traders
end up on the losing end of the market? After all, everyone
has access to the same numbers, the same data, the same info
– if it’s math, there’s only one right answer, right?
The answer lies in interpretation. The numbers don’t lie,
but your mind does. Your hopes and fears can make you see things
that just aren’t there. When you invest in a currency, you’re
investing more than just money – you make an emotional investment.
Being ‘right’ becomes important. Being ‘wrong’ doesn’t just
cost you money when you let yourself be ruled by your emotions
– it costs you pride. Why else would you let a loser ride in
the hope that it will bounce back? It’s that little thing inside
your head that says, “I KNOW I’m right on this, dammit!”
Bottom
line: You can’t keep emotions out of the picture, but
you can learn not to let them control your decisions.
To most people, being right is more important than making
money.
Here’s the deal. The way to make real money in the forex market
is to cut your losses short and let your winners ride. In order
to do that, you have GOT to accept that some of your trades
are going to lose, cut them loose and move on to another trade.
You’ve got to accept that picking a loser is NOT an indication
of your self-worth, it’s not a reflection on who you are. It’s
simply a loss, and the best way to deal with it is to stop
losing money by moving on – and really move on. Moving on means
you don’t keep a running total of how many losses you’ve had
– that’s the way to paralyze yourself. This brings us to the
next point:
Losing traders see loss as failure. Winning traders see loss
as learning.
Not too long ago, my twelve year old son told me that before
Thomas Edison invented a working light bulb, he invented 100
light bulbs that didn’t work. But he didn’t give up – because
he knew that creating a source of light from electricity was
possible. He believed in his overall theory – so when one design
didn’t work, he simply knew that he’d eliminated one possibility.
Keep eliminating possibilities long enough, and you’ll eventually
find the possibility that works.
Winning traders see loss in the same way. They haven’t failed
– they’ve learned something new about the way that they and
the market work.
Winning traders can look at the big picture while playing
in the small arena.
Suppose I told you that last year, I made 75 trades that lost
money, and 25 that made money. In the eyes of most people,
that would make me a pretty poor trader. I’m wrong 75% of the
time. But what if I told you that my average loss was $1000,
but my average profit on a winning trade was $10,000? That
means that I lost $75,000 on trades – but I made $250,000,
making my overall profit $175,000. It’s a pretty clear numbers
game – but how do you keep on trading when you’re losing in
trade after trade? Simple – just remember that one trade does
not make or break a trader. Focus on the trade at hand, follow
the triggers that you’ve set up – but define yourself by what
really matters – the overall record. # # # # # SolveYourProblem.com : 2007
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