Some say that Forex trading psychology is overrated, but during this old man’s humble opinion, it isn’t. I believe that trading psychology is what sets consistently profitable traders aside from the remainder , as a person’s ability to handle and overcome stressful situations, like experiencing a drawdown, having a losing position, and managing one’s greed, plays a central role in determining a trader’s success.
forex trading psychology If you’re not psychologically prepared to handle the strain that comes with trading, likelihood is that that regardless of how good your strategy is, you’ll not be ready to execute it properly and can presumably see your account deep within the red.
Just take a glance at the Turtle Traders’ experiment travel by Richard Dennis and Bill Eckhardt. A group of traders was taught the precise same system, with an equivalent exact risk management guidelines and principles. Some were very successful, while others floundered.
The difference? Trading psychology.
Some of the “turtles” were unable to handle the system’s drawdowns, or closed their trades early and were unable to maximise the simplest trade setups.
This is very almost like delivering the keys to an F1 car to a student driver and expecting him to carve the racing track like he’s Michael Schumacher. Even with a supercharged car, the student driver would probably lose a race to Huck’s broken-down Honda Fit as he lacks the mental fortitude to handle high speeds and sharp turns.
At an equivalent time, we can’t overlook the importance of trading strategy. You may be the foremost disciplined and emotionless trader out there, ready to stick with the plan and leave emotions at the door, but you’ll probably still find yourself in the red if the strategy that you’re following to a T is poor and not profitable within the end of the day .
The key’s to seek out the right balance between trading psychology and strategy.
Trading psychology alone might not be enough to show a losing system into a profitable one, but it can equip you with the proper tools to develop a profitable system. Having the proper frame of mind can provide you with valuable insights to tweak your trading approach to urge better results. In effect, having the proper trading psychology can cause a far better trading strategy.
Likewise, tons also can be said about the positive effects a successful strategy can wear trading psychology. You may find that sticking to the plan and weathering drawdowns are much easier when you’re trading a tested and proven system.
The bottom line is this: To become a successful trader, you’ll need both the proper mindset (trading psychology) and therefore the right tools (trading strategy). Without either one, you’re bound to fail.