Trading psychology (and the steps to surviving the market)
Posted on: 21 October 2019 by Emma Parsons
The forex market is not for the faint of heart. Anyone can start up an account and start trading, but the reality is that you will almost certainly lose a decent amount of money.
Some people survive, but some can crumble under the pressure, both financially and mentally, of the volatile forex markets. It’s important to know what to do in situations like these to give yourself the best possible chance of surviving in the market for long enough and potentially make a profit.
There are plenty of ways to stay ahead of the curve and ensure you’re mentally prepared for the fast-paced, ever changing forex trading landscape. If you’re still finding it hard to cope, why not check out Learn to Trade? They can provide you with effective techniques for coping with the stress of trading and other valuable techniques to help you get ahead.
Keep an eye on sudden changes
We just mentioned the ever changing landscape of Forex trading and we’ll do it again, because immediately, this is one of the things that newcomers to forex trading will struggle with.
Having to deal with sudden changes both for home traders and those on the market can be difficult, and seeing a win become a loss within a matter of seconds can be particularly hard to take if you’re not prepared for it.
Master these changes and start trading objectively and you stand a chance of surviving in a harsh industry.
It’s fine to lose money
The likelihood is that you’ll lose a portion of your money, and to be honest, that’s okay. Pretty much every trader will, and this will happen even to those who are thriving on the market.
If you anticipate your losses by making bigger wins to even them out, then not only are you learning from your experiences, but you’re also making a profit. Don’t go too hard trying to win the profit though, be reasonable!
The use of loss limits
In order to keep a firm foothold on the market, it’s essential to put in place a loss limit, or simply put, the amount per day you can afford to lose safely. Not doing so can actually put you in a precarious financial position.
Most successful traders normally use a limit of 7-8% on a daily basis, which helps them manage their finances and sets them up for another day. Find your effective loss limit and make sure you don’t go past this limit.
This is a crucial principle in forex trading to remember, as cutting your losses is a great learning experience. Not doing so can set you up for a major fall.
If you happen to be successful in a month of trading, don’t ruin that by doubling down or going for broke the next time around. Acknowledge your investments and go slowly – this is the best way to take advantage of the market and utilise a well-rounded market strategy.
Take time away after a trade
Made a profit? Go watch some TV. Made a significant loss? Go and play some video games. By continuing to jump straight into new trades, this can let your emotions take a stranglehold of your trading. Take each trade as it comes and come back refreshed and more experienced afterwards as a result.
The “good day” scenario
This correlates somewhat to our previous tip – if you’ve been having a great day making significant profits in your chosen market, don’t always assume that you’ll continue this based on form. The ever-changing market can strike at random and this can jeopardise everything you’ve accomplished so far.
You should be reviewing each trade individually on its merits, and focusing on making the profit. If this means that you have to stop for the day, then you should do what is best.