Control your emotions
Controlling and eliminating the effects of emotions when trading Forex can go a long way in determining the success or failure of a trade. Your mental state has a major impact on the decisions you make, especially for new traders in the market, and maintaining a calm demeanor is important for long-term survival in the market. Showing extreme confidence when you make a huge profit, or showing a lack of confidence in a trade when you are in a trading slump, can have a deadly negative effect on the next trade.
If you think that an excellent risk management strategy is enough to make you a successful forex trader, you are wrong. In fact, a very important factor in dealing with sound risk management, money management, and achieving success in the forex market is emotional intelligence. Emotional intelligence is one’s ability to identify and manage one’s emotions, which may adversely affect trading decisions.
Scientific studies have shown that our patterns for making decision strategies about a matter are developed during childhood. People as adults react to things in patterns that derive from this childhood pattern, applying their childhood experiences and perceptions to their lives. Simply put, it is the instinctive human response. Obviously, Forex traders are no exception to this rule. Many traders do not realize this when they trade and when they lose a trade, they always feel that the market is playing tricks on them and that the market has cheated them. So it has been suggested that as a trader who wants to succeed, one must take human instincts out of the equation and trade against human nature.
For example, a person who was never praised as a child will internalize the shame and see their trading failures as personal failures. However, the truth is that forex trading is like a random stroll through a minefield full of landmines, where the only certainty is its uncertainty. In fact, whether it is the Forex market, the stock market, or the futures market, one should concentrate on managing one’s emotions when trading and focus on whether the whole process makes sense and is in line with one’s trading plan, rather than on the specific amount of the trading result.
Trading failure can lead to anxiety and fear
Taking appropriate risks and learning to let go are two essential abilities to become a real player in the world of Forex trading. In layman’s terms, this means taking and letting go. When you make a trade instead, you need to be certified to do it, and when you don’t have the opportunity, you need to wait patiently and never take a shot. While we have to admit that a losing trade brings unpleasant emotions and fear, it is very dangerous to let fear dictate your actions.
Using trailing stops can effectively help forex traders control their greed and reduce losses. On this basis, forex traders are advised to keep their position sizes consistent when trading, rather than blindly increasing the quantity when there is a profit and scaling back when there is a loss. Do everything according to the plan, do not over-trade and do not over-trade.
Another common mistake triggered by out-of-control decision making is cognitive bias, meaning that people tend to see only the information that supports their ideas. For example, an overconfident forex trader may ignore information and charts that are unrealistic to their ideas.