Author: James Carnell
Whether you trade in currencies or commodities hoping to cash in on your recent investment, you need to be aware of one thing. A significant contribution to success for any trader/investor is understanding psychology. You may be smart, perform excellent market analysis on Forex interest rates or put together great trading strategies.
However, your discipline, as well as emotional stability (being in control of fear and greed), will be a factor in determining your success or failure.
Several traders may use the same approach to trading but the successful ones will (more often than not) be the ones with strong willpower and mental grit.
As a trader, it’ll be your beliefs and psychological traits that determine the types of results you can achieve and will also influence your style of trading.
Even if a trader’s strategies and techniques are popular and have been proven to be profitable, he/she may not prosper from them simply because he/she may be lacking the right kind of mindset.
An essential step in dealing with psychological issues is to be aware of them and to not deny that they exist.
This is what psychologists get their patients to do in order to heal. It is important to recognize the sources of problems and understand the issues that they emanate from.
Similarly, in order for traders to change their habits and become profitable, they have to identify their psychological issues and face them head-on.
This can take a lot of time but having commitment, discipline and persistence are also important parts of a successful trader’s psychological makeup.
There are a variety of psychological issues that a trader may face when trading. This may cause problems that can hinder a trader in his/her path to profitability and success.
Here are some common psychological pitfalls and what can happen if they are not acknowledged and dealt with effectively:
Prematurely closing a position
Due to the fear of position reversal, a trader may get overwhelmed by anxiety when opening a position. This will lead them to exit the trade too early which can then lead to disappointment. This disappointment might drive them to impulsively open yet another bad trade (this is also known as revenge).
Putting a limit on profits
A bad attitude to go into trading with is poor self-esteem. This may cause a trader to feel unworthy of profits or success. Such an attitude can cause the trader to put too much of a limit on profits when a lot more could have been made from a particular trade.
Too much excitement
Do not let excitement get the better of you. It will make you feel like you have control over the markets and this may cause you to treat trading as more of an addiction (similar to gambling).
In order to deal with these and other psychological issues, there are several practices that you can implement. Here are some of them:
Control emotions
One of the biggest challenges a trader may face is having too much of an emotional attachment to each trade. Whether in the form of excitement or fear, unreasonable decisions may result from this issue. Do not let your emotions cloud your rational thinking.
Be positive
In addition to controlling your emotions, you have to fill your thought process with positivity. The way you think can have an effect on outcomes. Train yourself to feed your mind with positive thoughts.
There are a ton of ways in which you can deal with the psychological issues that may be holding you back from your trading success.
It is also important to keep practicing and to be patient.
Take as long as you need with your demo account before going live and do not rush into it as there are risks involved in trading. Stay sharp!
This article does not necessarily reflect the opinions of the editors or management of EconoTimes