Sunday, February 25, 2018

Forex Trading Psychology : Acknowledging the Risk

June 13, 2010 by  
Filed under Money Management, Trading Mindset

One of the key elements in successful Forex Trading is Trading Psychology. There are many factors that components that help to a trader’s psychological makeup. There is also no easy method to achieve the mentality of a Successful Forex Trader. There are also certain factors that influence a trader’s psychology which we should be aware of. One of these factors, is Acknowledging and Accepting the Risk in Forex Trading.

The best Forex Traders are the most consistent traders. To become a consistent trader, it is very important to always apply a methodology to the market and make as few errors as possible. Usually a trading error happens when the trader does not follow his or her methodology. A commonly happened trading error is taking a bigger stop loss than planned or exit a trade faster than what is planned before hand. Taking a trade that does not fit the trader’s usual requirement or does not take the trade when the trade fit the trader’s requirement. These example of errors can really wipe out the trader’s Forex account very fast. It also drive him or her insane…

Such Forex Trading Errors are usually caused by emotions created by previous trades. The most serious emotional catalyst , in my point of view, is when the trader made a trade which they had high confidence in it and then the trade turns sour. After this bad trade, the trader feels sad, angry or maybe revengeful against the Forex market. This causes the trader to trade illogically and irrationally and make a weak attempt to win back the money he or she loses previously. This type of trade usually cause him or her to lose too. However, if the trader profit from this trade, the trader will become misguided as he or she will always attempt this method of trading when he or she loses a trade. This will result into even more losses.

The reason why this situation has happened is because traders does not willing to accept the risk when they placed the trade. Thinking that every trade they place will become profitable, so when they were hit by a loss, they become bitter. It is alright to feel the bitterness, however, when you do feel anger, sad or revengeful. Don’t Trade anymore. Stop, go to the mall, buy an ice cream, play with your children. Do something that makes you feel better and go back and trade with the right emotions.

Treat the losses as a form of expenses. An school fee to learn and found out if the forex strategy you craft out works. Once you accept the risk, you will feel less depressing when your trade lose.

Easy as it sounds, however accepting the truth about the risk in each trade is really not easy. Especially to the inexperienced and new traders. However at Whizforex.com, we craft some steps for you which makes it easy for you to accept the risk:

  • Plan out each of your trade
  • Know when to enter the trade
  • Know where to place your Stop Loss level
  • Know where to place your Take Profit level

Yes! And I believe you know this already! But why are we talking about this again?

This way, you think more clearly before you enter the position as your organized the information for your brain to see. Once the trade is entered, your brain will perceived the information differently too and you will know the distance between the entry, stop loss and take profit level.

At that point of time, you will know exactly how much money are you risking in that trade. This is incredibly important as you need to know how much you are risking then you are able to accept the risk.

After entering the trade, emotions is unavoidable, however it won’t impact the result the trade as the trade is already made.

A Forex Trader must accept the risk involved and must view the amount of money they risking as an expense. If they don’t, they never know if their strategy will work or not. Even Successful Trader has losses. They too, view losses as a necessary part of trading as there is no one in the world will know if their Forex trade will win or loses when the trade is being entered.

Once we accept the risk, the correctly mentality. The losses can be easily view as a part of trading experience instead of a personal attack from the Currency trading market. The trader also surrender to the fact that he don’t know if the trade will win or not. This gives him more control to his emotions and achieve consistent results in Forex Trading.

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