FX Psychology


Is psychology really important for forex trading?

Recently I was looking through a forum, where was discussed the importance of psychology for forex trading and for business in general.

I am sure that business psychology has a number of features. I believe that person`s ability to keep oneself under control in a stressful situation is the main condition for success on forex.

If you are not prepared to deal with the stress, that often accompanies trading, your chances to succeed are not good. And does not meter how perfect you strategy is.

There is always possibility of reducing the profits and even existence of damages. Of course you must do your best to prevent such things to happen. But mentally you should be ready for such events.

Just remember famous “Turtle Trader’s experiment” by Richard Dennis and Bill Eckhardt.
They decided to find out if it is possible to teach traders by certain conditions. If they will trade exactly by your rules and business strategies. Richard believed that anyone can be taught to trade on forex. That traders can be grown as well as turtles are grown on farms. Bill has an opposite view. He was sure that successful trading depends not on education but on character. This contrary of opinions led to the experiment, which explored whether a group of people with different background and abilities can be taught successful trading on forex.

So a group of common people was taught certain system with clear rules and principles of risk management. As a result, some people were very successful and constantly had good profit. But others constantly made the same mistakes and always had losses.

So where where is difference? In psychology! Psychology of trading.

Some “turtles” were unable to cope with stress and used to close positions as soon as there were any loss. Sometimes when they had profitable deals, they used to close them too early and lost 70 % of possible profit.

At the same time we should not underestimate the trading strategy. You can be the most disciplined trader, who strictly adheres plan and never has any stress, but if you use loss-making strategy, the results of your trading will be catastrophic.

The key of success is in finding a balance between psychology and trading strategy. Even the best psychology will not change unprofitable strategy. But psychology can teach the right things, which will help you to make profit strategy, maybe the best forex system. Right configuration of thoughts will help to perfect your forex trading strategy and give you the best results. From other hand successful strategy has the positive effect on the psychology. Maybe you have already noticed that proven strategy helps you to follow your plan.

Trading is not a trip to the moon or championship of box. You do not need a doctor’s degree to succeed here. Forex trading is just one of many professions, where you can be successful just by learning, practice and diligence. This is a normal business with planning, actions, discipline, risk, mistakes, profits and losses.
There are so many types of forex trading ways, that one of them certainly will suit for you. Do you lack of discipline? Will it happens to everyone. Once you learned to walk and to speak. Is there any reason not to learn anything else? Of course not. You can learn anything.

So for successful trading we need two things: properly configured thinking (your psychology) and the right tool (trading strategy). Together they create a successful system.