Trading Psychology

Control your emotions The forex market is made up of people, and their actions drive the markets up or down. People have financial goals and targets, and these financial goals have emotions attached to them.

The profit target has a pleasure emotion called GREED. Greed to make as much money as possible.

The loss target has a pain emotion called FEAR. Fear of losing money.

The forex market, like any other financial market, is driven by GREED and FEAR. To succeed at trading forex you must learn to control those emotions . you must learn to control yourself.

You won't meet a single successful trader who hasn't learned, to some extent, to separate his emotions from his trading. The pros all say that controlling your emotions is hard work, something they have to work at every day. Most learned to control their emotions only after they witnessed first-hand the negative impact of emotions on their trading account. They learned the hard way. Let's try to learn from them.

It is incredibly easy to be fooled by your emotions. In the heat of battle your emotions may exert pressure on you to change your strategy, to abandon your money management rules. This is why you must have full confidence in your strategy . and that comes from thorough back-testing and demo trading it.

If your emotions cause you to change your strategy even in the slightest, your entire strategy could go out the window and with it your long-term profitability. You must ignore the tug of your emotions and follow your strategy with strict discipline. You must enter the market when your strategy tells you to, and exit when it tells you. No signal no entry.

This is how professional fund managers trade . they conquer their emotions and make millions.

When you master your emotions you tend to experience them without the fear that they may end up controlling you. This is a large part of becoming a professional trader. Feel the emotions but do not let them conquer you. When emotions start making the decisions for you, your trading strategy will begin to change, and losses will follow.

The goal here is not to turn man into machine, or to remove that part of the human spirit that allows us to experience pain and pleasure. The goal of every forex trader is to create a lifestyle that promotes an inner sense of accomplishment. Controlling your emotions should help you achieve the level of success which a few international elite traders enjoy every day.

Begin to cultivate the habit of controlling your emotions from the moment you begin to demo trade. And carry those habits with you throughout your trading career.
Beware of self-sabotage We picked up this concept from forex guru, Van Tharp. Self-sabotage occurs when you lack the discipline to act in your own best interest. For example, when you have dessert, knowing that you shouldn't because you're trying to lose weight.

Another example: you know you need to exercise and you really feel good when you do, but somehow you just feel lazy and want to skip the exercise.

Let's see how self-sabotage may occur in trading:

• When you know you should follow your strategy (because it improves your    profitability)      but  you don't.
• When you know you need to put a stop loss when you enter your trade, but    you don't.
• When you know you should risk no more than 2% of your trading capital, but    you risk      80%  on a single trade.
• When you know you have to be in bed by 9pm to wake up in time to trade    the London    session, but you stay up till mid-night watching 'Sex and the City'.

Self-sabotage occur because of internal conflict within us, internal conflict accompanied by emotions that prompt us to behave in a manner not in our best interest.

Many traders avoid thinking about self-sabotage in this manner. They don't like to go inside themselves to see what is going on. They prefer to think technically about systems rather than take note of their self-destructive behavior. As a result, self-sabotage causes them to repeat the same mistake multiple times.

Self-sabotage is a real phenomenon that at times affects even the best of traders. If you want to be successful, you must at all times look out for such behavioral tendencies and avoid them at all costs.