For successful trading in any financial market, one needs to have many skills. This includes having the ability to evaluate a company’s fundamentals and determining the direction of a stock’s trend. But all these technical skills wouldn’t work if a trader doesn’t care about building strong psychology. Having emotion, thinking fast, and exercising discipline all are important elements of trading psychology. Fear and greed are the two most significant emotions to understand and control.
In this article, we’ll talk about why a trader should build strong psychology and how they should act on them.
Traders need to think too quickly in order to make quick decisions, jumping in and out of stocks on short notice. They’ll need a certain level of mental presence to do this. They must also have the discipline to stick to their trading plans and acknowledge when to take profits and losses. Emotions just cannot be allowed to get in the way.
When traders receive negative news regarding a specific pair or the economy in general, they are rightfully concerned. They may overreact and feel pressured to liquidate their investments and sit on their capital, attempting to avoid more danger. They may save some losses, but they may also miss out on some profits if they do so.
Fear is a natural reaction to a perceived threat, which traders must understand. In a situation like this, It is a threat to their earning potential. It might be beneficial to quantify the fear. Traders should think about what they’re afraid of and why they’re afraid. This thought should come before the bad news, not after it.
Greedy trading is a form of suicide. There are some traders that hold a winning position for too long in order to get every last tick upward in price. The upward tendency will eventually reverse, and the greedy will be caught. Greed is not easy to overcome. It’s generally driven by a desire to produce better results, to get a little more. A trader should be able to recognize this instinct and develop a trading strategy that is based on logic rather than whims or instincts.
Traders must create a set of rules and follow them prior to experiencing any psychological crunch. Set rules for when to enter and exit trades depending on your risk-reward tolerance. Set a profit objective and a stop loss to isolate emotion from the situation. You may also choose which specific events should trigger a decision to buy or sell a pair or trade.
It’s a good idea to set daily limitations on how much you’re willing to win or lose. Take the money and leave if you meet the profit target. If your losses reach a certain threshold, fold your tent and head back home.
Conducting Research and Review
A forex trader must be a researcher of the market. There are many events and activities going around every day and they all have an impact on trades and price fluctuations. A trader must keep an eye on the news, educating themselves and if there is a scope of joining any seminar or webinar, a trader must join in there.
traders should periodically assess their own performances. In addition to reviewing their returns and individual positions, traders should reflect on how they prepared for a trading session, how up-to-date they are on the markets, and how they’re progressing in terms of ongoing education. This periodic assessment can help a trader correct mistakes, change bad habits, and enhance overall returns.