Trading Psychology It takes a lot of skills to be successful in Forex and CFD trading. These include understanding basic trading principles, technical analysis, knowing the markets well, and having sound trading psychology.
We are not talking about academic studies, but it is a process that many traders go through when they embark on this activity, where strategies are developed to obtain the desired advantage when trading.
It is necessary to control emotions and make a series of intelligent decisions. You have to have a mental balance, mainly when you are operating, and the decisions that must be made have to be quick. You have to adhere to an initial trading plan and not change it when you enter a losing streak.
It is best to leave your emotions alone, but it is clear that emotional components come into play when trading. In the trading world, emotions can lead to misjudgments and thus lead to losses. Below are the most common feelings experienced by traders:
Fear is one of the first emotions you go through due to information dynamics, such as the visualization and interpretation of graphics. We agree that it can be a limiting factor when stopping opening positions that could be profitable without adequately calculating the risks.
Understanding fear is the first step to overcoming the emotions and inconveniences of entering something we know little about. Trading should not be taken as something that has to scare us; it simply takes time and studies to understand what is done, why it is done, and how profit can be made when trading.
Greed can be the worst enemy, so you have to know when to stop and take the profits you make. Traders with experience in the market know that take the profit and walk away when things are going well. The risk of not withdrawing in time can end with a devastating result if there is a sudden and unexpected change in the markets.
Overcoming a hard blow is not easy, but it is even easier to overcome greed since you must know when it is best to withdraw and enjoy the benefit achieved.
The most advisable thing is to identify the feeling of greed, deciding that you do not have to earn a little more. We must continue with a rational trading plan since desire can lead to excess trading, something similar to the famous gambling addiction that we must avoid.
In forex, hope is quite impractical as all traders experience it; it is okay to be optimistic and keep that state in check as you also have to confront it with the reality of when you are trading online.
Traders often fall into the trap of hoping that the markets will eventually adjust if you give them a little more time, which unfortunately doesn’t always happen when you want it to.
Although emotions and remorse are impossible to lose, you have to try to control them because they are dangerous when making decisions. Regret is a demotivating factor, and it even frustrates operations or the future of trading. It is best to maintain discipline when trading, which successful traders do.
Very necessary when operating is to know our psychological profile and master emotions. Reactions, and our limits. Discipline is essential. And so is having a risk tolerance when trading. Risk tolerance, fundamentally. Is the degree of investment exposure that one is willing to assume.
A realistic understanding of the market, assessing the risk-reward relationship. And those instant decisions that have to made affect risk tolerance. Another factor to consider is how much money you will be comfortable losing if the markets do not work out.
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