Being A Disciplined Trader In The Foreign Currency Exchange Market
In order to be a successful trader on the foreign currency exchange market you need to hard working, determined and disciplined. Disciplined forex traders are those who do not let their emotions overwhelm them and cloud their rational judgement. They instil their trading habits and are controlled and objective at all times. By having this rational mentality they are able to avoid one of the most dangerous trading traps – emotional trading.
Controlling your emotions and maintaining perspective
Controlling ones emotions is potentially the most important aspect of foreign currency exchange trading. All traders are human, unless you are using an automatic robot of course, and thus have the potentiality to succumb to extreme emotions in difficult, stressful situations. The most common trading emotions are negative and display themselves as fear, anxiety, greed and panic.
When experienced, these emotions can cause irrational decisions based on instinct instead of analytical facts, which inevitably lead to damaging losses when trading.
As may be expected one will experience specific emotions when a trade is disadvantageous. These generally include fear, panic and anxiety. Many of these stem of the potential loss of capital. A method to control and manage these negative feelings is by not trading on credit, instead trade with money you can afford to lose. This will decrease any heightened stress levels associated with the thought of depleting capital. Furthermore, one should stick to a trading plan. The trading plan was created for instances of emotional instability to inform one of their goals and strategies.
Contrary to popular belief, profitable trades can also lead to an emotional instability. When a trader experiences a succession of positive returns they will experience a feeling of greed and may place multiple trades of high value. This may diverge from their rational trading behaviours as they believe more trades equals more profits – a form of emotional trading. However, this can be as damaging as trading with a panicky mindset as the foreign currency exchange market is highly volatile and can turn against the trader at any time. Once again, the trader should return to his trading plan to reassess his goals and strategy.
Dealing with trading habits
In order to remain disciplined when trading forex it is important you have trained habits to assist in this matter. By instilling this routine into your forex trading system one will have a degree of control over your emotions. Here are some behaviours you should engage in to ensure these emotions do not begin to overwhelm you once again:
1. Set realistic goals.
In order to be a successful trader it is important to have a realistic trading plan with realistic targets. You should have a particular amount of pip targets per day or week dependent on your trading systems. It is vitally important that these goals are attainable as unattainable goals will cause anxiety and stress.
2. Take breaks during trading
It may be believed that forex trading is an intense career where one must be available at all times, this is a false assumption. Traders are only allowed to trade for a set number of hours before exhaustion is experienced and it is at this point that emotional trades will be made. It is highly recommended that regular breaks be taken in order to refresh your mind and body.