In order to be successful in forex trading, it is necessary to have the right mentality, which is the specific behavior that a trader must necessarily have.
In this article, we will try to define the profile of the ideal trader, explaining which the correct attitudes to adopt are and the mistakes to avoid, with the intention of optimally addressing this type of financial investment, because, often, the brain plays tricks!
Why are large amounts of money lost when investing in forex trading?
One of the main causes is that you behave badly and approach this type of investment incorrectly. There are numerous factors of human psychology that rage negatively when investing in forex trading, even if these aspects are often overlooked. Consequently, it is essential to understand and evaluate how one perceives and reacts towards trading activities.
It is clear that all traders see the same prices, read the relevant news, and analyze the same charts, but why does no one manage to get exactly the profits of the other? So what happens in the unconscious, to ensure that some are able to make money and others are not able to?
It is possible to research the answer within the cognitive process of each investor.
In the next section, we will see what the optimal behaviors behind success in forex trading are.
The right behaviors to be successful
How should we act?
You may have wondered. First of all, being rational is the best behavior you can have in forex trading. You must not be influenced by emotions. In general, all character aspects, particularly emotional ones, are “banned”.
So, the emotions to avoid are: greed; anger; hesitation; stress; anxiety; euphoria and so on. These can cause irreparable damage to your financial investment.
Conversely, there are character aspects, in addition to the aforementioned rationality, which instead must be adopted, therefore, which favorably favor the investment, and they are: calm; patience, and confidence in decisions.
Also, it is essential; being able to learn from your mistakes, trying not to make them in the future can be the key to success. But we will go into more detail on the subject in the next paragraph.
With the use of a trading diary, everything can be easier, because it is possible to write a short note every time you make a mistake.
Finally, the trader must absolutely be a balanced individual in terms of money management. In simple terms, he must know how to manage his invested capital in the best possible way. It is possible to learn a specific discipline, called “money management” in order to manage your money optimally and efficiently.
How to prepare for Forex trading
As we have mentioned, an excellent gym to learn how to trade is the Demo account, but that’s not all because to become a good trader, it is very important to train.
To know the tools present in online trading brokers, such as charts, indicators, and oscillators, you will have to study technical analysis and fundamental analysis. Thanks to technical analysis, we can understand how market trends move to anticipate them and open fruitful positions.
Technical analysis uses the following tools to analyze the market:
- Moving averages;
- Fibonacci tracing;
- Relative strength index.
These are some of the indicators that are used in technical analysis.
A winning trader is always attentive to the movements of the markets, inquires about political and social facts, analyzes the movements of the markets, and tries to precede them through the study of fundamental analysis, which examines all the macro-economic factors that are correlated with the investment.
Another very important study to prepare for Forex trading is that of Money Management.
Money Management will help you manage your capital adequately, to minimize losses, just follow these brief rules:
- The capital must be adequate for the financial instrument in which it is decided to invest;
- Never invest more than 2/3% of your portfolio in a single stock;
- Use Stop Loss and Take Profit;
- Consider every single action never linked to others;
- In the case of profits, close part of the open positions.
These are the fundamentals of Money Management, let’s say the basics that cannot be ignored; in the broker training section, you can find many related texts and videos that will help you improve and become a successful trader.
The mistakes to avoid in forex trading
The point is not to make mistakes, but, as mentioned above, to try to make them more, in order to greatly improve your performance.
To learn from your mistakes, it is very useful to register with a Forex trading broker through the demo account. With the demo account, you can make all the mistakes you want, since the money will be virtual.
To understand what are the mistakes to avoid, the best way is to actually make them in a protected situation like the demo account.
But what are the most common mistakes in forex trading?
First of all, not having a good preparation in this area. Therefore, a good trader must understand the trend of currencies, thanks to support tools such as charts. But above all, he must know the assets with which he intends to invest. You must absolutely not rely on chance. On the contrary, you need to have an action plan already defined and obviously knowledge on the subject.
Second, the most common mistakes related to losses.
Numerous traders increase their investment after suffering a loss. Because? In general, some of us trigger destructive behavior, which requires us to want to recover at all costs; the defeat just suffered. For this reason, more money is invested in each operation to double the profit and consequently recover the loss. If you think that’s what happens in gambling too.
It is a mistake not to be made absolutely, especially in forex trading, because doing so risks making the situation worse, instead of improving it. Also, when you start to get the predictions wrong several times in a row, it is advisable to be able to stop for a few hours. This strategy is called stop trading, which consists, in fact, in stopping when the trading operations are mistaken for more than two or three times in a row.
In this case, therefore, the optimal attitude to minimize the risk lies in stopping and taking a break to review the strategy initially adopted. Calmly resume business with new perspectives. Let at least four or five hours pass.
In forex trading, as in the course of life, there are bad days. When you realize that it is that specific day, then it is best to start the next day directly.
Finally, don’t panic. Always act relaxed, and remember that “calm is the virtue of the strong!”.