Know Your Psychological Effects In Forex Trading
Most forex market participants argue that forex trading is 90% is the power of emotions and thoughts, while the remaining 10% is a good forex trading system. It is important for traders to understand the psychological effects of trading to develop ways to reduce the negative effects of letting emotions influence trading decisions. The combination of fear and greed is the enemy of successful traders and forex traders must be able to maintain the balance of both when the entry and exit which is a unified aspect for trading to be profitable.
There are several ways in which traders try to keep checking the psychological aspects of forex trading and rely heavily on their individual trading types.
One of the reasons why automated and technical forex trading systems are so popular is because they remove the emotional influence of a trader in his trading decisions. Traders often choose to use a rigid set of rules for entry and exit positions, which are planned before trading, to ensure that they are not emotionally stuck in the market. Trading systems, both automatic and technical, eliminate the trader’s impulsive reactions that can lead to poor investment decisions such as exit positions too early or depending on the position for too long.
Although many automated trading systems, known as Forex Expert Advisors (EA) are extremely unreliable, this should not prevent traders from developing a mechanical way to transact according to their personal strategies. Technical trading is a set of terms or rules set, when achieved, then the technical trading system will give buy or sell signals where decision-making is not influenced by the emotional sense of the trader.
Again, we have to say stop loss usage for every trading. Performing a position entry is often described much easier than exit. The fact that closing a trading position (exit) will often result in a gain or loss. Two fundamental mistakes that traders often make are keeping an open position for too long, risking profits or extending losses, or not allowing sufficient trading time for fear of losses.
Stop loss is a very good and important way to ensure that any trading that runs as planned and removes the emotional decisions of the trader.
The psychological effects on live accounts with real money will affect each trader differently and for this reason developing a trading system to remove the decision-making process during trading becomes very important.