Psychology of Forex Currency Market
The reason why 90% of currency traders lose can be summed up with 2 words:
Many people fail on the currency psychology front and only a few take the time to transform their mindset. The reason why most people make losses is not that they cannot beat the foreign exchange market, but because they do not have the right mindset. Forex psychology is all about transforming your mindset.
In Forex, you must first master your method and then put in many hours of learning how the market works.
The Foreign exchange market is too complex and there are many factors that have a huge impact on the daily fluctuation of currency prices. Traders should understand how the online currency market works through studying Currency trend characteristics and also how these fluctuations take place.
Psychology and Emotions
When it comes to the market, winning is a matter of the mind. Studying the psychology of the foreign exchange market takes into account what influences others - including the mass psychology of the people that transact currencies on a daily basis. Anything involving winning or losing large sums of money becomes emotionally charged. Winning depends on knowing your own mind and also understanding how mass psychology moves the currency prices.
In most cases when traders invest in a currency, they invest more than just money - they make an emotional investment. This is where most go wrong; being right becomes more important than making money. When the transaction goes wrong since they have already made an emotional investment they let their decisions to be ruled by their emotions and they hold on to their losing transactions in the hope that it will bounce back. Unfortunately their losses become greater and they find it even more difficult to close their orders.
Even when traders make money and let their emotions get in the way, they either become greedy or over-trade.
Forex psychology will form a good foundation for trading profitably - it is about learning how to keep emotions out of the picture, and not to letting these emotions control your currency transaction decisions - trader behavior changes very little with time, as humans will always make the same mistakes over and over again.
You can learn how to control the three most dangerous emotions that tend to cloud judgment and cost you profits. These three emotions include:
Six Tips For Transforming Your Mindset
1. Define your goal.
There are many important Forex questions that you need to answer before jumping into the currency market. Creating and defining a goal will give you a start point to your success.
2. Keep it simple.
Some people use more than 5 indicators on one chart analyze and to inform them of their next move with no success or even breaking even. The thing is that more indicators do not equal more accuracy.
The 3 most powerful tools to use are:
- Candlesticks (buyer and sellers behavior),
- Price action (such as support and resistances), and
- Trend line (up, sideways or down).
3. Don't get emotional.
If you are attaching emotions to your trades because there is real cash involved you need to change your mindset and start following your plan. If you are a beginner with no previous experience always start with training and learn until you start making profits on you Forex demo account before investing your capital.
4. Nothing wrong with breaking even.
Not all your trades are going to be winners. It is better to breakeven than to lose. If you know that a transaction has turned against you don't start praying for a miracle hoping for the price trend to reverse instead cut your loss and move on. There are endless profitable opportunities.
5. Speculation is your worst enemy.
Don't speculate on where a currency pair maybe heading. Always use your currency charts and your plan and study the trend before opening a transaction. The trend is your friend, so make good use of it by following the price charts.
6. Don't allow your winning orders to turn against you.
If you have an open winning transaction at hand don't allow it to turn against you. It is better to place a stop 5 pips above the entry opening point and break even/or win little than to let it turn into a loss.
For how to utilize these tips look at the FX plan tutorial: the section about this is shown below.
Psychology Section on FX Plan