Trading Psychology: The Key Element to Success in Forex Trading

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It is a known fact that most forex traders tend to focus more attention on how to develop trading systems that will generate higher percentage of profits on their investment. Surprisingly I still keep wondering why only 5% of traders are successful and 95% end up being losers after all this hard work. From my personal observation, I realized what traders fail to put mostly into consideration before commencing their journey into the world of creating wealth and riches through that online ATM machine is a Balanced Trading Psychology.

To put this into experiment, I actually gave two traders the same broker, capital and most of all a high winning rate trading system. At the end of six months of trading, I used their investor passwords to check the balance of their respective accounts. To my greatest surprise, the second trader had tripled his account while the first trader was in breakeven. I conducted an interview with both traders and realized the reason behind this result was the way they both handled their emotions.

There is no doubt that ‘Greed’ and ‘Fear’ is the devil hindering us from achieving our goals and objectives. They create a barricade between success and failure but interestingly only 5% of traders have been able to overcome these devils. I do not really blame the 95% of losers that can’t tame this devils, I guess these emotions were engraved in our genes as humans.  The market being fully aware of this weakness uses this great weapon against traders.

Seriously, it takes consistent conscious efforts to conquer this negative emotions when trading, you have to find a way to bury them else you end up in the rabbit hole. I believe there are several things traders do which activate these negative emotions. One of them is setting unrealistic return on investment; I have always set my average ROI on monthly basis to be 50% of my investment, if at month ends, I get higher than that, then it is a plus or should I say ‘bonus’ for me. I personally realized traders believe forex is a get rich quick scheme. It is a natural phenomenon that every individual has a different risk appetite but I believe that successful traders take calculated risk trades that don’t affect their portfolio.

Within my entire years of trading, I have also observed that when urgent human needs are attached to trading, there’s a possibility of triggering the wrong emotions by you. You have to always keep calm at all times when trading, forgetting about the cosmos. Forget about the needs (present) and focus on trading as a profession. The market will always reward focused traders, eventually it will provide your desires and wants (future). I know a lot of traders who have demolished their accounts because of a single loosing trade. One thing for sure is you can’t feel or touch the market, once you press that ‘buy’ or ‘sell’ button, the rest is left to the market to decide.

Traders will never be successful till they accept some inevitable truths about the market. Price will move towards any direction regardless of your analysis and prediction. The only odds you have are if you can get more of your predictions right coupled with a sensible risk to reward ratio. With a sound money management not excluded in your plan, you are guaranteed to be a winner.  You can never escape those loosing trades, just try to get along with them and be humble with the market. Some professionals say forex is meant for men with fearless heart but i individually feel forex is meant for highly inclined spiritual beings. A man with a fearless heart will only conquer his ‘fear’ but will have no armor to protect him from ‘greed’.

Conclusively, no matter how hard we try to balance our emotions, there will be a day out of a million days of trading we will misbehave due to the fact that you are human and not God, or even a god!

Article by:

Sakoto Oladayo

Forex Analyst

InstaForex Nigeria Office

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