The Ideal Psychology of Forex Trading
Ø Have a Disciplined Plan:
The fault in the thinking of the traders is that they take shopping more seriously than trading. On an average the shopper would not spend more than $400 without collecting all the relevant information of that product that he is going to purchase. However the average trader makes the trade is such a manner that it may cost him the same amount. Also the plan must have stopping and limiting levels for the trade and your analysis should cover both the expected downside and the expected upside.
Ø Minimize your losses and maximize the profits:
The concept sounds very easy to follow but it very difficult to implement. At some point or the other the traders get deviated from the plan and take their profits much before what they had targeted it to be. This is because they no dot get a comfortable feeling when they are in a profitable position. But these are the people who eventually sit in the losing position and allow the market by letting the market to move a hundred points against them hoping that it’ll come back. Therefore its the job of the stops/stop losses to make sure that you don’t end up losing more than a fixed amount.
Ø Do not be very friendly with your trades:
The reason behind the fact that trading should be done with a well laid plan is that most of the objective analysis is usually done before the execution of the trade. Once the trader gets the hang of it, he analysis the market differently hoping that it will move in a particular desired direction rather than looking objectively upon the various changing factors which might prove just the opposite to your original analysis.
Ø Do not bet the farm:
The key point is never to over trade. Most common mistake that the traders make is that they leverage their account higher than what is required by trading larger sizes than what their account should actually trade. Leverage is basically a sword with a double edge. It may happen that one lot say 100,000 units of currency might require a minimal margin deposit of $1000 but that can never ensure that a trader who has $5000 is his account will easily trade five lots. A lot of $100,000 should be considered as an investment and not as a $1000 margin. The golden rule is: as far as possible try not to use more than ten percent of your account at any particular time.
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