When you first hear about forex trading and make some trades on a demo account, it seems like it would be easy to simply make a few trades and walk away with profit. However when most people try it, they find out that it feels more difficult once you commit your hard earned money to a trade.
The Demo Difference
When you are trading on a demo account, taking risk seems to be easier. You have no emotional attachment to the money that is in your demo account because it did not take any work to create it. This makes it easier to take on random trades or risky trades without the worry of consequences.
The Itchy Trigger Finger
When most people are introduced to forex trading they are taught that it's about going for the gusto and making big trades and scoring insane profits. This causes new traders to have itchy trigger fingers and want to make trades minute to minute. This usually leads to bad over sized trades and eventually to the death of a trading account.
Fear of Loss
Sometimes we hold on to trades that we know are no good in fear of closing them and making the loss "real". It's ok to have a loss and walk away. Sitting on bad trades just makes your losses larger and offsets any winning trading that you might be doing otherwise. If the trade isn't working out as expected, close it, and move on.
Forex Psychology Rules to Live By:
- Forex trading is just another type of trading, it can be dangerous just like other markets can be dangerous and they should be treated with respect
- If you miss a trading opportunity today, there will be another tomorrow, or the next day, don't try to make the loss up by taking an opportunity that is in your imagination.
- If the market gives you a black eye on a trade, just close it out and walk away. There will be more trading opportunities to come. Resist the urge to do revenge trading.
- It's better to close out a trade that has made a modest profit, than to hold it trying to squeeze out "a little more" and have it turn sour on you. Accept what the market gives, and walk away.
- It's ok to live to fight another day. There is no such thing as a perfect trader, there will be bad days and good days. The key to survival is what you learn.
To trade forex you have to master your emotions and reasoning. When you make a trade, have a reason for it, and don't bite off more than you can chew. This will help you to reduce any emotions you might be feeling on the matter. If you don't learn to master your emotions, the market will have it's way with you and spit you out pure and simple.