Do you know what is the essential element without which success in forex is almost impossible? Are you interested in trading like a real professional and make it your long-term career? If so, you have to be aware of one crucial thing, without which no notable and profound success is possible. It’s called “trading psychology”.
As you know, Forex trading refers to foreign exchange trading of two currencies. It’s done via a reputable and regulated forex broker on the most liquid financial market in the world. Forex has gained much popularity over the past few years since it allows every individual to make good money.
But, what is so special about Forex trading psychology? Why does it matter so much for traders? There are many reasons why psychology is a critical factor in trading, and in this text, we will explain everything in more detail. Let’s start from the beginning, shall we?
The critical element that keeps traders going for the long haul
Trading psychology represents a specific area that many traders tend to overlook and underestimate, especially at the beginning of their trading career. Nevertheless, seasoned traders have spent years and years in the Forex market, trying to understand how successful traders managed to keep going for the long haul.
The most common answer they got was – trading psychology. It’s no secret that Forex trading psychology is known to be a powerful emotional experience, and one must be in control of it. Otherwise, a trader who loses control of his emotions risks being controlled by them.
It would help if you never ignored trading psychology because mental processes strongly influence trading decisions.
How exactly are you making Forex trading decisions?
We will introduce you to two different scenarios of how psychology influences trading decisions. Let’s start with scenario number one, shall we?
The first scenario
Say you have £50,000 in your account. You have two options – to keep that amount of money or take your chance. When we say “take a chance”, we mean flipping a coin and choosing the right side. If you choose the right side of the coin, you win double time, which is £100,000.
What do you think you’ll do in this situation? Would you take the money or give it a shot? This is a 50/50 Odds/Chance.
Let’s see scenario number two.
The second scenario
This scenario is different from the first since you’d have two other options – to pay £50,000 or take a chance. In this case, you throw a coin. In case you lose, you need to pay £100,000. So, what do you plan to do if this happens? Would you like to pay £50,000 or take your chance?
Resume of both scenarios
These scenarios were done as an experiment amongst people, in general. In scenario number 1, the result was that people would take the money in the first scenario, while in the second scenario, the great majority would take a risk.
So, what does it all mean? It means that this experiment is an excellent example of how the majority of people will tend to risk aversion and cutting profits when they possess them. It also shows that they are more likely to take chances in risky situations.
The vast majority of us would easily cut profits very early and let losses run. It is the opposite of what is necessary to do successful trading.
We have two parts of the mind – the intuitive and the deliberate one.
The problem lies in the fact that humans have two aspects of thinking. We all have the intuitive and the deliberate parts of the mind. So, the intuitive one, as the name suggests, is the automatic, effortless, and fast part of the thinking process.
On the other hand, the deliberate part is more rational, logical, and slower. It requires much more mental effort. While doing Forex trading, we want to strengthen the relationship between these two types of minds to be steady for our trading.
If we want to control our trading, we have to be in control of our emotions. It’s essential to understand how our mental processes and emotions affect our Forex trading. Once we get a clearer picture of how to do so, we can hope for a long-term successful trading career.