TRADING PSYCHOLOGY: HOW TO OVERCOME YOURSELF?
Hello forex traders! How much money have you lost because of emotions? How many losing trades have you closed because they went negative and it annoyed you? And how many times did the currency immediately reversed after you recorded a loss? As we all know up to 80% of success in forex trading depends on psychology. Money management is of great importance and only then strategy. Not everyone realizes it, but this is the harsh reality. How to defeat yourself? How to remain calm in any situation? How to protect yourself from negative emotions that cloud your mind?
The Impact Of Emotions On Analysis
When you are sitting in losses, you do not pay attention to what is happening on the chart. That is, your brain rejects the signals that indicate that the price will continue to go against you. On the contrary, your brain tries to convince you that the price is about to turn around, which, of course, does not happen. If you close the position and look at the market with a clear eye, you will realize that the situation in the market is not the same as it was in your head a moment ago. This distraction in the form of a minus on the position affects your attentiveness, and you do not notice the obvious.
There is such a thing as analysis paralysis. That is, when some event literally knocks you out of the rut, after which you cannot adequately perceive the situation. This can be avoided with the help of reasonable sufficiency. That is, you stop looking for the perfect solution. Instead, you make the most correct and simple decision to close a losing position.
Also, traders are often afraid of losing profit. But then again, how many times have you held a losing trade, hoping for a reversal, and it still went against you? It is the same with profitable trades. There is a constant feeling that the price is about to turn around and all the profit will be lost. As an option, in this case you can use a trailing stop. Then you will in any case know that in case of price reversal, the profit will not be lost.
In principle, the cure for the influence of any emotions on the analysis is correct money management. That is, you just need to simply reduce your trading lot. The goal is to place such a lot, which would not cause you strong emotions.
Until you are used to being disciplined in every situation, it is better to trade at a lot that you could forget about. For example, you could open a trade on the daily chart and forget about it (accidentally or naturally). At the very initial stages this approach is justified, as no open positions will not prevent you from analyzing the situation competently. At the same time, the very fact of a negative trade will not knock you out of your game.
You Are Not Perfect
Remember, you are not perfect. There is no person who, like a robot, does not get nervous about trades, who performs absolutely perfect trading and never makes mistakes anywhere and ever. All of us make mistakes, it is normal, and it should be understood. Let's say you read that you need to reduce the lot, not to be emotional, and you still make mistakes. The thought that "I am smarter" does not leave your head. But, in general, if you read the biographies of successful people in other areas, you will learn that they also made mistakes. Often, a person needs to make all possible mistakes only in order not to make them later. So, to speak, we learn from our mistakes.
The average person believes that he is smarter than 80% of people. At the same time, there are always excuses for the question "why are you so smart, but so poor?" - something prevents you, you are too old, too young, your wife/husband prevents you, you were born in the wrong country and so on. Almost everyone thinks they are, so you don't have to worry, you are not the smartest.
The Vicious Circle Of A Beginner Trader
Exit From The Circle:
In general, all these pieces of the mosaic lead to the exit from the enchanted circle. You find a system, then trade, adequately perceiving losses. Accordingly, you further work with this system, solve problems with emotions, inputs and outputs, improve, tune-up and so on.
A Little Bit About Our Brain
The fact is that our brain compared to a computer has a very large hard disk, but a very small amount of RAM. Do you know the feeling when the brain is so overloaded that absolutely no information, even seemingly simple ones, can be stored in it? Of course, we cannot expand this memory, but we can control the number of simultaneously opened applications/programs. That is, we need to fight the so-called white noise. Remove social networks Facebook, messengers, YouTube, checking mail, and so on. This is all white noise that clogs your brain and prevents you from working adequately.
There are many opponents and many supporters of meditation. Meditation is, in fact, nothing more than to lie/sit under calm music and go into a certain semi-trance state. Humans periodically need three states: being awake, sleep and a trance state. Usually after a certain mental effort, you start to get very dumb without doing any useful work. This is the brain signaling that you are lacking the trance state. 30 minutes of trance a day is quite enough.
Do Not Set Goals In Trading
When you set yourself a specific goal, for example, to make 1% every day it doesn't work. You start looking for non-existent trades again, clouding your brain. Therefore, you should not set profit targets. On the other hand, it is possible and even necessary to set loss limits!
Sometimes, there is a sudden unreasonable desire to open a trade. Although the system did not give a signal. As a way out of this situation, you can try to open two accounts, one for adequate trading, where you will open trades clearly according to the rules of the system. Another smaller one for aggressive trading, when you have an irresistible desire to open a trade. If it really "works", you will still get profit, though not so big.
Bottom Line
As you can see, strategy is often not the deciding factor in trading. Psychology is what ultimately makes you act in one way or another. It takes the right approach and practice to be unstoppable in trading. The rest comes with experience over time.
The Impact Of Emotions On Analysis
When you are sitting in losses, you do not pay attention to what is happening on the chart. That is, your brain rejects the signals that indicate that the price will continue to go against you. On the contrary, your brain tries to convince you that the price is about to turn around, which, of course, does not happen. If you close the position and look at the market with a clear eye, you will realize that the situation in the market is not the same as it was in your head a moment ago. This distraction in the form of a minus on the position affects your attentiveness, and you do not notice the obvious.
There is such a thing as analysis paralysis. That is, when some event literally knocks you out of the rut, after which you cannot adequately perceive the situation. This can be avoided with the help of reasonable sufficiency. That is, you stop looking for the perfect solution. Instead, you make the most correct and simple decision to close a losing position.
Also, traders are often afraid of losing profit. But then again, how many times have you held a losing trade, hoping for a reversal, and it still went against you? It is the same with profitable trades. There is a constant feeling that the price is about to turn around and all the profit will be lost. As an option, in this case you can use a trailing stop. Then you will in any case know that in case of price reversal, the profit will not be lost.
In principle, the cure for the influence of any emotions on the analysis is correct money management. That is, you just need to simply reduce your trading lot. The goal is to place such a lot, which would not cause you strong emotions.
Until you are used to being disciplined in every situation, it is better to trade at a lot that you could forget about. For example, you could open a trade on the daily chart and forget about it (accidentally or naturally). At the very initial stages this approach is justified, as no open positions will not prevent you from analyzing the situation competently. At the same time, the very fact of a negative trade will not knock you out of your game.
You Are Not Perfect
Remember, you are not perfect. There is no person who, like a robot, does not get nervous about trades, who performs absolutely perfect trading and never makes mistakes anywhere and ever. All of us make mistakes, it is normal, and it should be understood. Let's say you read that you need to reduce the lot, not to be emotional, and you still make mistakes. The thought that "I am smarter" does not leave your head. But, in general, if you read the biographies of successful people in other areas, you will learn that they also made mistakes. Often, a person needs to make all possible mistakes only in order not to make them later. So, to speak, we learn from our mistakes.
The average person believes that he is smarter than 80% of people. At the same time, there are always excuses for the question "why are you so smart, but so poor?" - something prevents you, you are too old, too young, your wife/husband prevents you, you were born in the wrong country and so on. Almost everyone thinks they are, so you don't have to worry, you are not the smartest.
The Vicious Circle Of A Beginner Trader
- Searching for a system: you find a strategy that appeals to you.
- Trading: as a rule, this period lasts 1-2 days, at best a week if.
- First Losses: taking your first losses. It's usually down to the first few trades.
- Anger: naturally, there is a feeling of being cheated as the system did not deliver the promised profits;
- Blame: the system does not work; forex is a scam and the author of the system is a scammer. Someone is necessarily to blame, for example, the broker that closed the position a point later, but not the trader himself. And everything starts all over again.
Exit From The Circle:
- Finding a system.
- Backtesting from the beginning to the end: the strategy should be either tested manually on the history or in a tester if the strategy is automatic.
- Absolute confidence in the strategy: when you have fully tested the strategy, know all the statistics, know all the pros and cons, you gain confidence in the chosen strategy.
- Good money management: further, you add a good money management.
- Now it is "your" trading strategy: the strategy should be completely yours. If you are not comfortable holding positions for 3-4 days, move to a smaller timeframe. Or, on the contrary, if you are too lazy to open trades often, choose a larger TF. That is, the strategy should suit your temperament and be customized for you.
In general, all these pieces of the mosaic lead to the exit from the enchanted circle. You find a system, then trade, adequately perceiving losses. Accordingly, you further work with this system, solve problems with emotions, inputs and outputs, improve, tune-up and so on.
A Little Bit About Our Brain
The fact is that our brain compared to a computer has a very large hard disk, but a very small amount of RAM. Do you know the feeling when the brain is so overloaded that absolutely no information, even seemingly simple ones, can be stored in it? Of course, we cannot expand this memory, but we can control the number of simultaneously opened applications/programs. That is, we need to fight the so-called white noise. Remove social networks Facebook, messengers, YouTube, checking mail, and so on. This is all white noise that clogs your brain and prevents you from working adequately.
There are many opponents and many supporters of meditation. Meditation is, in fact, nothing more than to lie/sit under calm music and go into a certain semi-trance state. Humans periodically need three states: being awake, sleep and a trance state. Usually after a certain mental effort, you start to get very dumb without doing any useful work. This is the brain signaling that you are lacking the trance state. 30 minutes of trance a day is quite enough.
Do Not Set Goals In Trading
When you set yourself a specific goal, for example, to make 1% every day it doesn't work. You start looking for non-existent trades again, clouding your brain. Therefore, you should not set profit targets. On the other hand, it is possible and even necessary to set loss limits!
Sometimes, there is a sudden unreasonable desire to open a trade. Although the system did not give a signal. As a way out of this situation, you can try to open two accounts, one for adequate trading, where you will open trades clearly according to the rules of the system. Another smaller one for aggressive trading, when you have an irresistible desire to open a trade. If it really "works", you will still get profit, though not so big.
Bottom Line
As you can see, strategy is often not the deciding factor in trading. Psychology is what ultimately makes you act in one way or another. It takes the right approach and practice to be unstoppable in trading. The rest comes with experience over time.
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