While trading in Forex, you need to be in the right psychological territory in order to advance in the correct direction. Psychology is a vital part, and even the most seasoned players in the Forex market with the best technical knowledge and years of experience cannot achieve success without learning to control their emotions.
Here, we will talk about how you can reduce impulsive decisions and practice trader discipline by controlling your impulses.
Human beings are emotional creatures and thus prone to making mistakes, but these mistakes can cost you a lot of money while you’re trading in Forex. The most commonly seen attribute is fear, which can significantly limit your efficiency while you’re conducting trades. Your mind naturally wants to take the path with the least amount of risk and might lead you to exiting a trade when there are indications that you might suffer a loss.
Nevertheless, this might cause an undesirable deviation from your trading scheme, which you planned with great caution. You might make some impulsive decisions, hoping to turn things around in your favor and end up suffering huge losses in the process. Your brain is not always able to think for the long term and tries to fix the current bad position you are in, thus ruining your chances of making profits in the future.
Now, let us look at how you can reduce impulsive decision making and deal with risks in a more mature way.
How to reduce impulsive decisions
You can reduce impulsive decisions in the following ways:
- Creating a solid plan. When you do not have a definite plan, there are higher chances you might give in to your impulse. Hence, it is important to devote time to going through your charts and planning for the next week. You can use a trading journal to keep track of things like Forex pairs and key levels, as well as keeping an eye on opportunities that might come knocking.
- Maintain a schedule. A great way to reduce impulsive decisions is to monitor the daily charts that give you a lot of time to judge the scenario correctly and make logical decisions. In case you are new to Forex trading, the daily time frame can be particularly useful for you.
- Limit the time you spend looking for a trade. If you spend a lot of time in front of your computer screen going through charts, you are more likely to make rash decisions. The rationale behind this is that when you’re spending a lot of time looking for a favorable trade, you’re getting into a mindset where you are not satisfied till you’ve discovered what you are looking for.
Stay grounded while trading in Forex
It is perfectly normal to have high ambitions and dreams while trading in Forex. But, you should remember not to sacrifice reality for the sake of your dreams because that won’t bring you any profits. As such, you must stay grounded in regards to what you expect from your trade.
Do not set unrealistic expectations like making millions of dollars using a small Forex account in a matter of a few days. You should remember that trading in Forex is mostly about facts and logic, so you should form your expectations accordingly. This will prevent you from making desperate decisions like using your children’s college money in the hope that you will get lucky and strike gold.
The Forex market consists of individuals who can turn the market volatile through their emotional decision making. Even if a trader has years of experience in the market, they can submit to greed or fear, taking rash decisions like trading in a highly volatile market in order to make profits faster because they are acting on a hunch as opposed to a viable plan.
In this regard, having a solid plan is a great way to become a disciplined trader. You should understand that every penny is valuable, and unless you have some clear indication that your trade might bring you profits, you should avoid investing.
Seasoned traders know how important it is to organize their tasks before carrying out a transaction. This will not only boost your confidence but also allow you to assess your trading operations more effectively.
Control your emotions
In order to escape your mental trappings, you must observe the market in a realistic way. It is normal to feel overwhelmed sometimes, and in these situations, it is a good idea to allow yourself to recuperate. When you conduct trades solely based on impulses, the consequences can be disastrous. Remember, you are not taking a gamble and need to manage your risks efficiently in order to succeed.
Furthermore, you should know what your faults are because only then you can transform yourself into a top player in the Forex market. By being disciplined, patient, and using reasoning based on facts and figures, you can assess your strategies better.
Conducting research and review
As a Forex trader, you must know everything you can about what you are dealing with. Stay abreast with the latest developments, read some Forex trading journals, and attend conferences and seminars that would give you brand new perspectives.
You should know that no amount of research is too much. This includes going through Forex charts, conducting macroeconomic analysis, studying the industry, and having one on one discussions with some of the top managers.
Thus, we saw what trading psychology is and how it can positively or negatively impact your Forex trading decisions. Once you change your attitude and get in the right mindset, it will allow you to accept the uncertainties and not let failures force you into making drastic changes to your trading scheme.