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Trading psychology is an essential component of success in financial markets. Most newcomers believe that the drawbacks of the trading strategy cause their failures. But in fact, the psychological state also has an impact on trading efficiency. While trading, a trader is under serious psychological pressure: he feels fear, greed, anxiety, etc. Therefore, the decisions may not always be right and reasonable.

What emotions should Forex traders avoid?

Traders often feel a great variety of emotions, ranging from the euphoria of the earned profit and ending with the fear of losing everything. Emotions are a natural reaction of every person to certain events. To free yourself from them completely is unrealistic, but every trader can control them.

Depending on what is happening on the market, traders may experience:

1.1 Greed

Greed is one of the main reasons why novice traders lose their money. This emotion force traders to open/close positions too early, open random transactions, as well as risk too many lots per one trade.

If a trader is greedy, he will not close a profitable position, even if the market gives the accurate signal. In order, greed does not control you, develop a trading algorithm and open all positions only according to your strategy.

Do not risk the whole amount on your account. It is a classic mistake of a novice trader, who allows the greed to guide himself. You are better not to risk more than 2% of your capital.

1.2 Fear

Fear haunts the novice trader who hasn’t mastered a certain strategy. Naturally, the more experience you have, the more confident you feel. This applies to any profession, any occupation and Forex trading is no exception.

First, practice your strategy on a demo account. Trading on such an account, you can hone your analytical skills, try out the theoretical knowledge in practice, develop the strategy without fear of losing your money.

Fear also comes to the trader without a trading plan. The trader opens a deal, and what to do further he does not know. The plan should clearly describe trading goals, as well as contain strategies on which you will focus. When you have a trading plan that you strictly follow, it removes the fear of the unknown, since you know what you should do in a given situation.

1.3 Excitement

Many traders are driven by this emotion, and they turn into players and trade intuitively. The excitement after the profitable trades or the desire to win back after unprofitable ones are the reasons that ruin the trading. Taking frequent losses only activates pointless trading. If the trader has failed, he wants to recoup. And sooner or later it will lead to losses.

How to create a proper trading mindset?

A trader should follow the next rules:
  • Money management is necessary. It will help minimize risks. All successful traders use money management in trading.
  • Adhere to the trading plan. A good trader should have an effective trading plan and follow its rules.
  • Control emotions. Emotions work against the trader, forcing him to make irrational decisions. Giving in to such feelings as greed, fear, traders often open hasty transactions and take irrational decisions, miss important news. Minimize the influence of the human factor on trading.
  • Be patient. Trade only when you see the perfect trading signal that matches the conditions of your strategy.
  • Be realistic in your expectations. Do not hope for quick earnings.
If you decide to engage in trading professionally, the study of technical and fundamental analysis and the Forex trading psychology will bring undeniable benefits to achieve high results. You can also take a look at the key trading principles and psychology in the Forex articles section at the JustForex website.