Psychology of Forex trading.
On Forex, as on any financial exchange, the influence of psychological factors is of great importance; they sometimes interfere with making the right decision and almost always serve as the main cause of losses.
Surprisingly, it was the psychological pressure of the market that caused most of the largest losses that occurred during the entire existence of the currency exchange. In this article I will try to outline the main points that will help you avoid making annoying mistakes.
Forex psychology mainly concerns the moments of opening new transactions or closing existing orders. What should you do to ease market pressure?
Psychology of entry.
1. Deceptive trend - you went to Forex and saw that there was an upward trend , your hands reached out for a buy order.
This is the number one mistake of any new trader. Its result, as a rule, is an erroneously chosen direction of the transaction. Never open trades in a hurry, immediately after you have launched the trader's trading terminal , first assess the situation on neighboring timeframes and conduct at least a brief market analysis.
2. Periods of rapid movement - very often there are situations when the trend moves at a mind-blowing speed. A rapid change in rate occurs literally during the formation of one candle. Such moments are also not advisable for entry. It seems to you that you should open a deal and in just a few minutes you will already earn more than one Forex point .
But most often the situation develops according to two scenarios - you receive a requote or the price just as quickly begins to move against your transaction.
3. Excitement - news came out about the weakening of the dollar and everyone immediately rushed to buy euros. Don’t blame everyone, if you were not one of the first to learn this news, then most likely you will make a purchase at the beginning of a strong pullback. Try to act as you decide, and not under the influence of the crowd, this is one of the basic rules of Forex psychology.
Psychological aspects of closing Forex transactions.
Here the situation is even worse than in the previous case.
1. Panic - news came out or there was a rumor about the impending collapse of the dollar, and you have an open buy deal.
Do not write off closing it if it can withstand fluctuations of more than 500 points, most likely this rumor is false, since you will learn about the real collapse of the dollar when the quotes drop to a minimum. 2. Fear – this is what prevents you from getting maximum profit when trading Forex.
You opened a successful trade and write off closing the order with only 10 profit points, for fear of losing them. But the peculiarity of trading lies precisely in obtaining the maximum possible profit. 3. Hope – not surprisingly, it can also cause irreparable damage to your deposit.
The trader hopes to the last that the trend will change its direction and turn in the right direction. Never wait for a reversal if the price has already crossed significant levels and is confidently moving against you. 4. Greed – it also forces you to hold positions until the loss is complete, but it also influences the choice of a disproportionately large size of transactions. As a rule, it is greedy traders who lose their deposits very quickly.
Forex psychology has a rather severe impact on trading performance; try to at least partially eliminate this factor by placing stop loss and take profit orders and transferring some transactions to pending orders .