The Psychology of Forex Trading

Filed under: Learn Forex Trading |

Psychology – you hear the term everywhere: from sport, to business, to food, people are always talking the psychology of something or other. In trading, psychology is an extremely important element as it is the mass psychology of the market which determines which way that a price moves.

 

On an individual level, psychology is also very important as it can influence your every decision, and you must be aware of your emotions during trading. If you become emotional about a particular trade, then it is time to exit as people can do strange things once emotion is involved. I remember when I first started buy stocks and shares. I bought five hundred pounds worth of Dragon Oil stocks. The price had been going up well, and I bought on a dip. The price kept on going down, so I bought some more, thinking it was really cheap. And then down some more it went, so I bought some more, hoping that it would rise a little and I would break even. And so it went. I eventually was down about 1500 GBP, and I was panicking – but it was too late to just walk away. Then, in one crazy day, the price started going up sharply. I was only down around three hundred pounds, but I still wanted to break even. The price plummeted again, all in the space of a few hours, and I finally had to admit defeat. After a couple of years, the price is now above what I originally bought for. But I was losing sleep over it and the trade had become far too emotional. It was a lesson learned, and I always, always, stick to my stop loss now.

 

Perhaps we need a bad experience to really learn something. In fact, I think we live in a culture where we are all too afraid of failing. But that is how humans learn, from the day we are born. We try to walk, and we fall down. We learn. Then we try again and one day – eureka, we get it! This is probably what trading is like. We have to take baby steps and make mistakes. And one day, if we keep trying, we might start running.

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