mental/emotional dynamics or the psychology of Trading Forex. Let's
begin with a few "rules of thumb". These "rules' support the mental
habits needed to achieve the Traders Mindset. These rules have their
beginnings in the world of manual Forex trading.
"Manual" Forex trading simply means that the Forex trader initiates
all Forex trade entries and exits from his Forex trading "platform" or
"terminal". The advent of the personal computer has caused a
phenomenal explosion in this type of "retail" Forex trading.
In traditional technical analysis the Forex Trader closely examines
technical Forex indicators. Such indicators as candle sticks, trend
lines, Bollinger bands, moving averages, stochastics, Fibonacci lines,
etc. are used to make ones Forex trading decisions. The number of
Forex indicators used and the combination of indicators used is
usually a matter of personal preference for most Forex traders. The
approach the Forex Trader is using at the moment many times will
determine which and how many indicators are used.
When I say "approach" I'm referring to whether the Forex trader is
"day trading", "hedging the market", "swing trading", "trend trading"
etc. An explanation of the various types of Forex trading "methods" or
"approaches" to Forex trading is a subject for another Special Report.
I bring up these methods to illustrate the fact that many "indicators"
and many "approaches" exist. The Forex Trader Mindset is the central
key to success regardless of which "approach" or set of "indicators"
one uses.
Before we get back into the "rules of thumb" let me say that one of
the biggest attractions to trading Forex is the opportunity to earn
handsome returns. Keep in mind that risk is the flip side of
opportunity. In other words, the higher the profit potential - the
higher the risk. Forex traders do everything in their power to manage
their risk. Forex risk management is a topic for yet another Special
Report but developing and maintaining the Forex Traders Mindset is the
first step to successful Forex Trading.
I also need to mention that good technical analysis skills are very
important if one is to manual trade Forex successfully.
Forex Traders also spend a great deal of time developing effective
trading "methods" and "approaches". We see how that ties into the
Forex Traders Mindset in just a moment.
Back to our "Rules of Thumb"...
Rule number 1: Never trade Forex with your rent money (or any money
you need for day to day living). In other words, only use money that
you can afford to lose without affecting your lifestyle. It may sound
pessimistic to be talking about losing your money but the reason this
is important is you need to nurture a "sense of detachment". The more
emotionally detached you are from the money that you are trading the
better your judgment and the clearer will be your decision making.
(It's the same reason why Doctors are discouraged from operating on
family members- too much emotional involvement clouds the judgment)
Never trade Forex with borrowed money.
This is a key concept and I cannot over emphasize the importance of
developing and maintaining an emotional detachment from the money you
are using to trade Forex. It is common for emotions to run high when
you are trading Forex "live" and you have you're your money in the
trade. This is when it is very important to maintain your discipline
and keep your judgment as clear as you possibly can.
Rule number 2: Think in terms of capturing PIP's rather than making
money (whatever your native currency is be it dollars, pounds, euro's,
etc.) Thinking in terms of PIP's allows you to distance yourself a bit
from the money in your trading account. In addition, PIP's are the
"universal Forex unit of measure" and as such can have different money
equivalents depending on the lot size you are trading and your native
currency.
If you get good at capturing PIP's then I guarantee that you can and
will make money.
A word about discipline. You are likely to hear the word "discipline"
used quite a lot in connection with Forex Trading. Perhaps the slogan
"Plan Your Trade and Trade your Plan" best summarizes the practical
side of discipline. To me, the real heart of the matter when it comes
to discipline is the ability to do want is needed to be done at the
moment rather than what may "feel" good to do at the moment.
Socrates once said: "The Key to living is always learning how to
live." Applying this to Forex trading, we can say, "The key to Forex
trading is always learning how to be a better Forex trader."
Obviously having a Forex trading method that you have confidence in is
vitally important to "Trading Your Plan" but beyond that one needs to
resist the urge to do what "feels" good during your trading session.
There is an old adage that summarizes the mental side of discipline:
"First conquer yourself and the world will be yours." In other words,
discipline and self-control enable you to more easily and consistently
reach your Forex trading goals (and goals in your life in general).
A word about goal setting. Try picturing yourself already having
achieved your goal. Conjure up the feeling you have had in the past
when you achieve a goal. Feel the satisfaction and happiness of having
achieved your goal. Now project yourself from that place of
achievement back to where you are now and along the way back to where
you are picture each step needed to get to your place of achievement.
Write these steps down. Make an action list from these steps. These
steps are your "bridge" that will take you from where you are to where
you want to be.
Now just do it... take action and complete the steps that you have
listed. Give yourself a "pat on the back" as you complete each step
and keep moving toward your goal. It's not the pace of your movement
that is most important but rather the direction of your movement.
Think like a tortoise: "slow and steady wins the race." Keep on
keeping on. Be like a postage stamp: "Stick to it until you arrive at
your destination." Before you know it you will arrive at your goal
(and soon it will be time to set a new goal).
Rule number 3: Make changes to your method between Forex trading
sessions (using your demo account) not during them. It is sometimes a
real challenge to let your method "play itself out" when you are
trading Forex live and this is where discipline comes in. Discipline
requires that you "Plan your trade and trade your plan". Avoid the
mistake of trying to "Plan" during your Forex trading session.
Emotions usually run quite a bit higher during live trading and this
can impair your judgment. Don't make the mistake of devolving into
"knee jerk" reactions during your live Forex trading.
Let me emphasize the value of using your demo account. Your demo
account is where you can test out your strategies and Forex trading
methods. This includes methods that you acquire from others as well as
those you develop on your own. Make liberal use of your demo account.
Get comfortable with your Forex trading method before you trade "live"
with it. If you know what your method can and cannot do then it is far
easier to "hang in there" during live Forex trading. You will need to
learn to trust your method during the "heat of battle" of live Forex
trading. This is why it is so important to work out your method(s) in
demo testing before going "live".
Rule number 4: Stay as calm and "centered" as you possibly can during
your live Forex trading. If you are doing a succession of Forex trades
such as day trading for example, take a moment to compose yourself
when you sense the need. Stop and take three full breaths (inhale
fully, then exhale fully - do this three times in a row). Get in the
habit of doing this at the conclusion of each Forex trade. This is
important whether your last Forex trade was a gainer or loser. If it
was a loser then you need to "shake off the sting" and regroup for
your next Forex trade. If your last Forex trade was a gainer, you need
to come down a bit off of your "traders high" and get ready for your
next Forex trade. The bottom line is: you need to posses your emotions
not the other way around. Forex traders who have come to grips with
this Rule have found themselves much closer to achieving their Forex
trading goals.
Rule number 5: No one ever went broke earning a profit. A profit is a
profit no matter how small. Learn to deal with a variety of market
conditions before you try to go after the "big ones". You know, the
"big ones": the big movements in price that crash through support or
resistance into huge returns. Work your way up to the "big ones" if
you wish. But, keep in mind that slow and steady can win the race.
You don't have to capture huge percentage gains in order to survive in
the Forex Market. Consistent small gains can really add up over time.
If you earn just 1.8% a day after 1 year you will have increased your
account 103 times! In other words, if you begin trading with a $500
account earning 1.8% a day, after just one year you would have
$51,500. This is the slow and steady power of compounding!
Combine the power of compounding with The Forex Traders Mindset and
you are well on your way to winning in the Forex Market - the largest
market in the world.
Disclaimer - This article is for educational purposes only. It is not
offered as investment or legal advice. The reader assumes all
responsibility for any and all profits or losses incurred by his or
her trading activities.
The Next Generation of Forex Robot: http://www.theacyclone.tk/
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