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There is no doubt that trading can be a stressful activity. Even more so if you are new at it, and feel the pressure to succeed. So it is totally normal that mood fluctuations, emotions, and impulsive moves take over your performance.
While it is normal, as a human, and as a beginner trader to sometimes feel overwhelmed by fear and greed, there are ways to manage it. The fear of losing money may cause you to react rashly and leave a deal earlier than necessary. And the greed of wanting to make more money out of a deal may leave you holding onto a position longer than you should. And no matter what strategy you adopt, if you allow your mindset to control your trades, chances are you will be harming yourself and your performance.
The first step is identifying these reactions for what they are. And if you’ve had a bad experience in your early trades, don’t let that be an obstacle to your journey. Fortunately, the psychology of trading is well mapped out and there are plenty of things you can apply to avoid getting too emotional. We’re talking about discipline and the ability to control your thoughts and emotions. And by doing so, you will unleash the fearless trader in you.
How to get into the mindset of a successful trader
Forex trading requires knowledge and experience to become successful. As a new trader, you can learn to avoid harmful emotions that affect the outcome of your trades negatively. Here are our top psychology tips to stay grounded and discipline impulsive emotions.
Stick to your trading plan
Our first tip is about creating a trading plan and making sure you stick to it, no matter what! One of the most effective ways to control your impulses when negotiating or trading is to simply remove them from the process. In order to achieve this, create a plan that will guide you. Include everything from the signals that drive your decision to trade, to the expected profit, exit tactic, and how to avoid potential issues. Write down your plan and go back to it every time you feel the urge to deviate from it. When you feel stressed, consult your plan.
Take a break and meditate
Taking regular breaks even if you are a part-time trader can help relieve emotional pressure and relax your mind. If you apply this consistently and learn to train your mind to let go and enjoy something different for a while, your stress levels will be more manageable. It is also important, to take a step back and meditate, to really clear-out your negative and anxious thoughts.
Accept the losses and opportunities to learn
Traders know and accept the reality of potential loss in some trades. The sooner you come to grips with this, the easier your path to successful trading. As a new trader, it is easy to be discouraged by a loss and even obsess over what went wrong. Instead, try to learn from it and grow. Go back to your plan, what assumptions were inaccurate? What expectations were baseless? Take the data and assess your moves. Next time, you will do things differently. Keep your focus on the next transactions. Aim towards consistency rather than a one-time highly profitable trade.
Practice and more practice
There is no magic bullet to become a successful trader. The best way to get better is to keep practicing. Reading up on educational content is surely helpful. For theory. But in reality, the only way to learn how to swim is to jump in that pool. And the same goes for trading psychology. The more you practice, the better you get, the more confident you feel in your decisions, and the less likely you are to act impulsively out of fear. Create a demo account and experience the real-life market conditions, minus the risk of losing your own money. You can test your strategies, and learn what works and what doesn’t. It is a great method to overcome emotional distress as a trader.
Setup a take profit and stop loss
Take advantage of the great advances in automation and online trading features. If you follow thoroughly your trading plan, you know how much profit you are expecting in a trade and how much loss you are willing to accept. Therefore, make use of the take profit and stop-loss functions to detach yourself from the trade as it unfolds. And it also helps to stick to your plan.
Keep up the good work… and your mood!
Psychology is an essential component in navigating financial markets. Trading can be a stressful and emotional experience, for newcomers and experts alike. And often these feelings take over and lead to more damage than good. So if you want to be trading profitably in the long term, you must train your mind to control these impulses. Eliminate emotions from your decision making by following tried and true tips.