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Trading Psychology at the Forex Market

Think smart. Act smart. 

This is the first attempt to raise some issues regarding Forex trading psychology, which is the first thing that needs to be solved in order to succeed in the FX market.     

Let’s start with the basics: We are talking about the Forex industry, the foreign exchange market, the marketplace where every participant can easily buy or sell currencies.

The whole story seems like an easy game of up and down currency pair movements, with a 50% nominal possibility to win, so why don’t we take some steps beyond that in order to maximize our winning chances and to be rich in the upcoming months?

So, what’s the big deal? And what do I do next? I will be answering all the questions that I, myself, set upon me: Can I beat the markets and what are my weapons to succeed in doing that? My insightfulness? A sentiment index? Some of the tons of the useless indicators that I can buy via the Internet, that present themselves as “The Holy Grail”? Maybe a mixture of the above? Why not? The answer to all these questions is one. YES.   

But, as you can already imagine this is NOT a game. Let us explain this to you with a few words: FX is by far the biggest financial market worldwide with over 4 trillion US dollars in daily volume. That’s a lot of money!

Forex is all about fundamentals, technical analysis, breaking & financial news and official announcements of major countries and organizations with lots of impact on their related currencies. Currency pair trends are world’s economy indicators, through a macroeconomic view.

It’s a highly competitive environment filled with strong players like central banks, investment & commercial banks, mutual funds, ETFs, hedge funds, big corporations, wealthy individual & institutional investors and traders around the world with many years of professional experience and so on. We are talking about organizations that rule the world’s markets. They have huge amounts of money, highly skilled personnel, sometimes inside information and all the cutting edge technology.

At this point you need to know some statistics about FX: It’s proven that globally, less than 10% of the individual investors have long-term capital increase. The rest give up FX, sooner or later, with zero accounts or heavy losses. So, what can we do about it?

One option is to hire professionals. Robert Kiyosaki – a wealthy businessman, investor and famous author – wrote in one of his best-sellers: “I hire accountants, attorneys, bankers, brokers to tell me about stuff that I don’t need to know about. They are a lot and in most cases smart enough to do the right job”. It’s so, simple.

The second option is for you to become a professional expert.  Anyway, if your dream is to conquer the markets and you are determined to be the next Wolf of Wall Street surely, nobody could stop you, but it is obvious that you need to practice a lot. For example anyone can play basketball but you can’t beat the NBA players. So, our issue is, you should prepare yourself to give up any other professional activity - in fact there is no space for part timers at the FX. This has two costs: time & capital. The trader’s job requires a lot of time and at least 2-3 times of totally losing all of your initial investment portfolios. After that, you should be more careful and perceptive. Finally after, let’s say, a period of 3 to 4 years of full-time focus on FX, you could gain the proper academic knowledge and the trading experience needed in order to be ready to start gaining a steady and long-term raise in profits, granted you always manage to control your instincts, your over-reacting human being habits and behaviors and finally, to get critical thinking by listening and reading to every part of this global market in order to hone the quick reflexes that could help you take the right investment decisions.

So, how do you feel now after listening to all this when you were about to fund your first FX account? Scared? Maybe. But, you shouldn’t.

Let’s go back again and review some fundamental facts in order to clarify the essentials of FX: Markets are constantly changing. Nobody can predict the markets. Forecasting methods don’t belong in the Forex logic. Loss is a part of the job. Even the strongest members of the FX market don’t make profits all the time, but their profits are by far more than their losses. And that is how they make money.

We’d like to wrap this up with a small bit of advice. Don’t be naïve, thinking that you could easily become rich in a short period of time. Also you need to know how to manage your feelings, like greed and arrogance. Don’t have illusions about being successful quickly and easily. Eventually, a last tip about FX: “My best friend is the trend and my worst enemy is my bad traits”. 

All that’s been said in this session has to do with trading psychology and the wrongful sentiments we have when we’re starting to occupy ourselves with something new, in this case the Forex industry that we don’t have a clue about and how our feelings react to our investment options and choices. We hope that this article could be a useful tool to control your feelings in order to succeed.

Of course, there are solutions even if you are about to follow the difficult path of becoming a professional trader and on the other hand the much more easy way of getting help from professionals. The choice is up to you! We wish you productive trades and excellent long-term results. See you soon with very specific suggestions and solutions.