One of the most important tools that you can use when you trade forex is logic. There are many points that logic can help you with on the market from your forex strategies to your emotions. It is important that you know how logic can impact forex strategies and other points of trading. When you use logic with your forex strategies you are more likely to make a profit on the market.
Using Logic for Forex Strategies Weak Points
As part of your trading strategy you should have a review of how your trades have done. When you do this review you need to be logical in your approach and your assessment. To review your trading system you need to look at your trading journal which is something that all traders should have. The journal will detail your thought process behind your trades and all the points of your trade.
The first step in logically assessing your weak points is to see whether you have been following your trading strategy and system. If you have not you should see where you are diverting and how often you divert at that one point. If you are constantly diverting at the same point you can logically state that this is the weak point in your system. You should look at changing this point to something you are more likely to follow.
The Controlling of Emotions
When you become emotional when you trade you must think about what you are about to do logically. Of course, this is something that is often easier said than done because when your emotions take control you do not pause and consider what you are doing. When you create your trading plan you should consider when you may be taken over by your emotions. These points are actually easy to pinpoint when you think about it logically.
The main emotions you should be looking for are greed, fear and anxiety. Greed will logically come when you have the most to gain. This means that you should ensure your trading plan has clear rules on what to do when your trade is profitable. Fear comes when you are going to lose money. This means that your trading plan should have clear rules one when you are losing money on a trade. Anxiety is often a side effect of fear and logically comes when you are about to lose money that you can’t afford to lose. Your trading plan should state that you never use money to trade that you cannot afford to lose.
The Assessment of Risks
The risks you face can easily be determined when you plan your trades logically. If you are going to place more than 2% of your trading account on a single trade you can logically see that this is a bad idea. The more trades you lose the less your trading account will be and the shorter your trading career is. It is not only the risk per trade that you can logically determine.
Leverage risk is something that all traders should consider because of the large amounts of leverage on offer. Logically, you can determine that the more leverage you use the more your trade is worth and the more you stand to lose. This should bring you to the previous point of the amount you are willing to risk per trade.