When you start learning about forex trading, you will see a lot of information about both fundamental and technical aspects that are relevant to the trading process. You cannot carry out trading activities without studying the basic concepts. But just having theoretical knowledge does not make you a successful trader as the ability to apply this knowledge has to be developed over time. So, we can say that the skill level of a trader can say a lot about their chances of success in the currency market. This includes analytical skills, decision-making skills and being good at managing risk.
There is one more thing that you need to manage while engaging in trading and that is your own emotions. Managing your feelings and thoughts is the real challenge that you need to overcome to become a successful trader.
In this blog, I will be sharing 7 forex trading tips to manage your emotions and trade with the right mindset.
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Identify and Acknowledge Your Emotions
Those who have attempted to trade with real money must have experienced a lot of mixed emotions while placing their very first trade. For those who haven’t started with live trading, you need to prepare well for dealing with them like a true professional. You will feel the thrill and excitement while expecting to win the trade and will also be stressed and anxious about the end result. If the market starts moving against you, you will sense the possibility of a loss which leads to fear and guilt.
Once you learn to identify and acknowledge these emotions, trading will become easier as you will focus less on the feelings and more on the logic. The emotional responses are valid and they are there for a reason. Fear is there to keep you safe from danger by giving warnings and the excitement about rewards motivates you to move forward and take the risk. Trying to get rid of these emotions will only make things harder. Instead, you should process your thoughts with a rational approach.
2 . Develop a Trading Plan
No trader can succeed in the forex market in the absence of a clearly defined trading plan. It is impossible to eliminate the emotions that you encounter during the trading process but when you have an action plan in place, you will be able to refrain from emotional trading. For example, greed is a common emotion that many traders feel and when they give into their urges, they will end up losing their money due to over-trading or taking excess risk.
This can be avoided if your trading plan has set some rules regarding the amount of risk you can take to earn a certain amount of profit. The profit target can be fixed by entering the opening and closing prices of a trade into a profit calculator. You should also specify the currency pair, trade size and your account base currency. By finding outcome of trades in advance, you will be able to stay true to your plan and exit the trade at the right time with a stop loss and take profit order in place.
3 . Build Trading Discipline
Many traders devise a sound trading plan and yet they fail to get desired results as they end up deviating from their strategy. Those who don’t have self-control and discipline will struggle to resist their urges and will make poor trading decisions. Our brain is wired to prefer instant gratification over delayed victories and this leads to a lack of patience. Thus, you need to remind your brain about the rules that you have set for yourself before taking any action that is driven by emotions.
Discipline cannot be developed in a short span of time but you will surely get there if you make conscious efforts and work hard to become consistent with your trading methodology. You need to set a limit to everything that you do as a trader. Limit the number of trades, limit your screen time and also limit the risk that you will be taking for a trade. You should also limit your leverage and learn to trade within a budget. Whenever you get tempted to cross these limits, remember that the rules are there to keep you safe.
4 . Set Realistic Expectations
The definition of realistic will be different for every trader as the goals and aspirations are different. If you don’t apply logic, you will end up being disappointed as forex is not going to give you overnight success. Thus, you need to apply the theory of probability while setting your expectations. Don’t measure your success with the money you make as a trader. Instead, evaluate your performance by keeping track of your progress in the world of trading. Follow a long-term approach and stay committed to your goals by striving for improvement.
5 . Take Calculated Risks
Taking more risks with the goal of earning more profit is a common mistake that many traders make. Instead, you should aim to maximise your gains while only taking minimal risk. This is the essence of risk management and it teaches you to take calculated risks within your risk tolerance. In the case of calculations, even a small error can be costly in the constantly fluctuating forex market. Hence, you should utilise automated trading tools like forex calculators that always deliver accurate results as long as you enter the details correctly.
6 . Learn from Your Mistakes
“Anyone who has never made a mistake has never tried anything new” is a quote by Einstein. Thus, you should not be afraid of the mistakes that you are going to make while trying new things as a trader. Just learn from your mistakes and do better next time. This approach is very much needed to manage the negative emotions that can convince you to quit trading after some setbacks. You should not give up due to the fear of failure. Keep moving forward with a growth mindset and let the losses teach you a valuable lesson to trade better.
7 . Take Breaks and Manage Stress
Have you tried to trade when you are really tired or under a lot of stress? This is something that you need to avoid for managing your emotions. When you trade without a break, you will experience both mental and physical burnout which affects your ability to think rationally. You are more likely to make emotional and impulsive decisions when you keep trading for hours. Hence, you need to take a break from trading and manage your stress by engaging in relaxing activities. Only trade when you are energised and calm and take a rest when you feel restless.
8 . Bottom Line
In a nutshell, managing your emotions is one of the most challenging tasks that you need to excel at as a forex trader. Studying trading psychology and practising stress management techniques will help you deal with your feelings and focus on logic throughout the trading process. Some traders try automated trading strategies to overcome psychological challenges. However, those who prefer manual trading must be able to take control of their emotions to make rational decisions.