To trade in forex market, we must know the base of markets, technical analysis, fundamental analysis and etc.. they are necessary, but not enough. Trading is a skill, because it involves our psychology in forex market. So, we have to role of psychology In forex market. Let’s start
Emotions
The most prodigious issue that moves all markets is emotions. What’s emotion in Forex market? For example, please imagine a situation that president give an alert about war. Without any reason, we are frighten. It’s emotion. Excitement. People invests on their dreams, their visions, their opinions. If they feel something has a great future, they buy it.
But, if they don’t have an idea about future of economy, and they feel economic disaster, they sell every thing, and convert it to cash. All economic factors, political issues, international economic conditions and etc… affect on people’s vision. Then they decide to buy or sell.
Do you know how traders decide to trade?
In some theoretically books, have been written that investors and traders are rational, and determine with reasons and arguments. But it’s nonsense. Because traders and people are not rational. They are sensitive and emotional. How?
First they get news about economy, industries, companies and etc.. Second, they analyze it in their mind. They feel it, is it positive or negative? Even, they may decide to buy something. A rational decision. But, once the market is moved against their idea. They change their decisions and do something irrational. for example, in November 11th 2017. The US election day.
Markets and people were positive with Mrs. Clinton. If they got any news about Mrs. Clinton, they were purchasing Shares and selling Gold. because they thought if she become president, the US economy will achieve higher level of welfare. and if TVs released any news about Donald Trump, markets were moved extraordinary. Because they felt , Donald Trump can disturbed economy. They were buying Gold and selling their shares. But what does it happen after election?
Trump won the election. Gold was reduced, And Stock indices like Dow Jones was increased. Why? Because their opinion had been changed, And they thought Trump can helps US economy. And they sell gold and buy Dow Jones. It’s emotion. It’s excitement’s effect on markets.
Greed
One of the most common reason of losing in Forex market is Greed. What’s greed In Forex market? Imagine a situation that you purchase 1 lot Gold at 1270. Now its price is 1320. Your unrealized gain is 5000$. Do you close your position? Do you get your 5000$ without any greed to achieve more money? Definitely No. WHY?
Because you think you can get more money with this position. You think it can go higher, increase more. Why do I close my position? We can get more money. Even, you may buy more. 3 lots. To get more money. suddenly, the trend is changed and the Gold reduces to 1300. Now, You lose your money. Because you buy more than 3 lots in 1320. And there is no way to rescue yourself. You are in trouble. Why? The reason is Greed.
In bullish market, people think can get more money. And their emotions lead them to buy more. In bearish market, people can get more money by selling. And then, they sell more, sell more, at least they lose their money. Because they didn’t close their position.
Fears
And another common reason for losing in forex market is fear. What’s fear? In our last example, we bought 1 lot Gold at 1270, and we didn’t close it, because greed of making more money. Please imagine this situation, You buy 1 lot gold, and Gold is reduced to 1230. Your unrealized loss is 4000$. It’s so deplorable and somber, because you lose your money, And it may be reduced more, it’s really catastrophic. How can you solve this difficult situation?
Definitely, to avoid losing more you close your position with loss. Because you are scared, you are scared from losing more. So, you close your position. Afterwards, the market trend is changed. You tell yourself, If I didn’t close my position, I would have more money now. It’s a psychological issue in Forex market.
Your greed and fear leads you to lose, to do something emotionally without any reason. When you have buy position, your fear tells you: Market trend is against you. Oh, it’s market crash. It’s economical crisis. I don’t tell you don’t close your position if you in loss. It’s necessary. My speech is don’t do anything with excitements, fears, greed, emotions. It’s really important to become a professional Forex trader. Sometimes, these emotions disturb our mind and we can’t make the best decision. But please control yourself and don’t do anything without any plan.
Hope
If you trade in Forex market, you realize me about importance of psychology in trading. Do you remember your first trade? You buy or sell a symbol and suddenly direction of market was changed. You were confused and couldn’t wait for markets to change its direction. Afterwards, you were frustrated and just told God, please change the direction. Please change trends.
You were depressed and felt failure. Because you couldn’t get money in your first trade. Because it was not like your dream, like your opinion about Forex trading. You thought it’s easy, but you lost your money. The first thing that we must do is don’t give up. Forex trading is the best way to get money. But if we know psychology in Forex trading. Trading is Skill. It’s an art.
The second matter is don’t hope that God helps you. If you analyze market and find out that market is against you, close your position. Don’t wait that God changes the direction of market. Hope is the one of most prevalent emotion in Forex market. We have to hope about our success and achievement. We must not give up and leave Forex market. It’s hope. But if we hope that God will change market, it’s preposterous. God is here, if we try and do our best efforts.
Patient
Some people lose their money in Forex market, because they don’t have any patient. If market changes against them, they close their position. I know we have to close our position if we were wrong, but not about short term movement. It’s excitement. Psychology In Forex trading tell us, success is a way. Successful people in Forex trading have patient. If they trade, they don’t close it immediately. They have long term vision. Patience in trading is so wonderful matter and a key point to become successful in Forex trading.
So, please be patience in Forex trading. There is no success overnight. We have to have patient. And there is no market crash and economic crisis in one day. All thing are made over time. Constantly.
To become the best and most successful trader, we must know psychology in trading.
