When it comes to investing, there
is a treasure trove of psychological information available. In fact, there are
volumes of research done on trading psychology alone. But Forex trading is an
entirely different ballgame. Are those same psychological traits prevalent in
the land of Foreign Exchange currency?
That is what we are here to figure
out today. Because successful Forex trading requires a much different
psychological mindset than that of stocks and other traditional investors, undoubtedly,
the mistakes they make are psychologically different, too, right? Well, let us
find out!
You Might Be
Interested In:
We did some research to find out if Forex trading was the same as gambling. Our Forex vs. Gambling results might shock you (or, they might be precisely what you are expecting)!
We did some research to find out if Forex trading was the same as gambling. Our Forex vs. Gambling results might shock you (or, they might be precisely what you are expecting)!
- Unrealistic Forex Trading
Expectations
Sometimes Forex traders seem to
forget the fact that probabilities exist for a reason. It is not probable for a
Forex trader to be profitable 100% of the time, but some of you guys seem to
forget this fact. You need to know that sometimes losses are not only possible
but inevitable in the world of Forex (or just about any area of investing).
Learn when to cut your losses and
move on so that you can make it up on the next trade. Do not try to mess around
with your stop/loss presets on your currencies in hopes of trying to eke out
some tiny bit of profit. That is an excellent way to just dig yourself in
deeper.
- Forex Traders Are Overconfident
Sometimes confidence is excellent
when it comes to investing. In fact, confidence is actually a required trait
for those that need a mental push to take a significant risk in order to
realize potentially big returns. But in Foreign Exchange, being overconfident
can cause nightmarish scenarios.
The second your mindset goes to
“Forex trading is easy!” then you should either take a break or just call it
quits because it is only downhill from there. You need to have laser-sharp
precision and mental focus for Forex trading. Overconfidence is a great way to
tear away at that focus and start letting your guard down.
- Emotional Forex Trading
One of the most common
psychological mistakes of Forex traders is that they let their emotions get in
the way. This is not limited to Forex trading only. In fact, emotional trading
is linked to huge losses across any traditional or alternative asset classes.
There are two schools of thought
that cause emotions to ruin Forex gains (and gains from any other investment):
Greed - You see, other people
are making a bunch of money with a specific currency pair, so you get greedy
and want to jump in on those gains as well. Except, by the time you dive in,
the money train has already stopped. You are now needing to get rid of your
currency pair and end up having to sell at a loss.
Fear - It is human nature for
our minds to assume the worst. Maybe your ideal currency pairs are not
performing well, so you hurry up and pull the trade before any gains are
realized. Except, once the trade has been removed or canceled, the market makes
a little jump that would have given you some sweet profits. Fear caused you to
miss out on those profits.
- Poor Forex Traders Cannot
Admit Defeat
The final mistake we are going to
leave with you here today is this: Psychologically, a poorly performing Forex
trader has trouble admitting defeat. This may go hand in hand with our first
point about probabilities, but it needs to say it on its own.
Your currency pairs are on a losing
run, and you need to pull the plug. Your experience tells you it is time to
pull the plug. But, for some reason, your brain is telling you, “No, hang in
there a little bit longer, it’s going to bounce back, I promise!” Some Forex
traders even double down on losing trades. “I’m losing now, but if I throw more
money into the trade, then when it rebounds, I’ll have made a decent profit!”
Just learn to listen to your gut
and listen to your experience when you are told that it is time to jump ship on
a particular trade!
