Psychology of Forex
Some traders think that divorcing themselves from emotions could solve their problems. For example, let’s say you have a long running position on the trade EUR/USD currency pair, and bad news comes regarding the state of the Eurozone economy, what would you do?
In such situations, most traders will feel scared, overreact, and quickly close the trade without a second thought. Revenge trading usually takes place when traders try to make more aggressive trades, especially after experiencing losses. You will speedily place trades without any planning or comprehensive analysis.
Secondly, because you become desperate to recoup the losses, revenge trading forces you to open trades with larger position sizes.
Overconfidence can also cause you to risk too much capital, falsely believe in your analysis, or forget about your trading plan. Having a party after each successful trade is an emotional motive that can increase your trading flaws.
How to Overcome the Psychological Obstacles
Invest in forex education
Forex trading education is one of the critical ingredients for overcoming the above-mentioned psychological impediments. With proper training, you will gain essential skills for making rational decisions, instead of relying on your gut feelings – The Psychology of Forex Trading.
A trading plan is usually created after doing an extensive analysis and studying the market behavior. Consequently, you’ll be taking trades based on feelings and without making any meaningful analysis of the market behavior – The Psychology of Forex Trading signals.
For example, if your trade plan specifies that you will be entering re-tracement trades whenever the market bounces off one of the Fibonacci levels, you should stick to that rule as much as possible for The Psychology of Forex Trading.
Here is a 4-hour chart of the AUD/USD illustrating how you could apply the rule.