Trading Psychology - why most traders fail
Forex trading is hard. It can be soul-crushing, self-esteem destroying and financially devastating.
Most fail, that's a fact. Buy why do most traders fail? Well, usually it is one of the following reasons...
Reason 1. They don't have a profitable trading strategy or trading plan i.e they don't have an edge
Reason 2. They become victims of their own trading emotions i.e the challenges of trading psychology
Profitable trading strategies and trading plans can be another time. For now, I will focus on the challenges of trading emotions and psychology.
Fear, Greed, Boredom & Anger - the 6 negative emotions of trading
Dealing with the challenges of trading psychology can often feel like emotional torture. Forex trading can fill traders with strong negative emotions such as fear, greed, boredom and anger. These emotions are powerful. If they are not controlled, they will dominate your trading, which often results in lost capital and blown trading accounts.
I am sure you can relate to at least 1 of the following...
- A trader has had a losing streak. He is now too fearful to open another trade.
- A traders position is doing well. He fears losing what is currently in his floating p&l, so the trader closes the position early rather than letting it run.
- A trade has made a good return. He now fears placing trades in fear of losing his winnings.
Greed, boredom & impatience
- A traders current strategy has not provided a trade in a few hours, days or weeks. The trader become bored, so he decides to open positions that are not in-line with the his trading strategy or plan
- A trader is not making as much money as he wants, so he decides to increase his position sizes.
Anger & frustration
- A trader misses a profitable opportunity. He doubles-up positions in order to gain missed profits.
- A trader is tired of constantly losing or closing positions early, he becomes unstable and opens multiple positions and trades that do not fit his trading strategy and are based on anger or frustration
I can relate to all of the above points, because I have felt and done all these things!
It is important to note that there are many positive trading emotions and feelings when Forex is traded properly. Such as, excitement, satisfaction, achievement and freedom.
Beating Trading Emotion - reducing and minimising trading psychology
Successful trading is not about mastering trading emotions - I don't think that is possible. Instead, successful trading is about reducing and minimising trading emotions.
To a prevent being victim of these intense trading feelings and thoughts, I suggest you do the following...
1. Reduce trading capital - only trade what you are willing to lose. Seeing smaller monetary fluctuations in your account can help reduce fear and also frustration when things go wrong.
2. Reduce position sizing - risking less per trade can help reduce trading fear drastically. If risking 2% of your capital per trade is creating heavy mental and emotional fog, simply risk less per trade. Becoming a profitable trader is not a 100 metre sprint, it is more like a long-distance walk.
3. Focus on percentage returns rather than monetary gain - trading is a game of percentages, not pips or dollar return.
4. Successful trading is about sticking to the strategy, not making money - change your mindset so that satisfaction and success is about following your trading plan or strategy, not about how much money you are making. Making a decent return will be a bi-product of following your strategy successfully. If you need to a trading strategy, my Advanced Price Action Course will teach you my strategies in detail.
5. Think longer-term - do not review your trading performance on a daily or weekly basis. Instead, trading results should be measured monthly, quarterly or annually. Having a longer-term view can reduce trading pressure, negative emotions and psychological challenges.
6. Ease the pressure on yourself by making trading a 2nd income or money making hobby - trying to make trading your main income when you have very little trading experience or no profitable track record will add unnecessary pressure.
7. Keep busy - keeping your mind occupied whilst positions are open can prevent closing positions down early.
8. Consider longer-term trading
Now watch this video...
How do I trade Forex? I trade Forex using price action. You can learn my very own and verified strategies on this page.
Which trading books do I recommend? A full list of the books I have read and highly recommend are on this page.
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