FX trading is something that can be very hard on the mentality of the trader. This will cause a number of mental traps that you can fall into if you are not careful. It is important that you know what these mental traps are and how they can affect your trading. Once you know what the metal traps are you will be able to find out how to avoid them when you trade.
Using Only Numbers in FX Trading
There are a lot of traders who feel that FX trading is primary number based. This means that they are only going to look at the numbers of the market and nothing else. While you have to consider the numbers of the market this is not all that you have to look at. The first mental mistake you could be making is ignoring part of the market in favour of concentrating on the numbers.
When you trade you need to consider the numbers of the market. However, you also need to consider the human side of the market. The market is greatly affected by market sentiment and what traders think the market is going to do. When you combine the numbers of the market with market sentiment you are going to get a full image of the market.
The Past will be the Future
The second mental trap that you can fall into is the idea that what happened in the past on the market will happen in the futures. This trap comes from the idea that the market moves in cycles. While the market is not random and does move in patterns there is no guarantee that past activities will be repeated.
This mental trap affects a lot of fundamental traders, but can also affect the technical trader. The fundamental trader is affected the most on the market because of the basis of their analysis. When they analyse the market they are looking for what happened in the past. They will use the past reaction of the market to assess what could happen in the future. The reaction that the market had in the past is not always going to be the same as in the future. To better determine what will happen, traders need to look at the present market sentiment.
Using Pseudo-Certainty to Trade
The last mental FX trading trap that you can fall into is the use of pseudo-certainty to trade. When you use this mentality to trade you are going to be working on the 50/50 mindset. This means that you are going to state that you have a 50% chance of being right with your trade. This is something that can be very dangerous to use.
While you do have a certain level of certainty when you are trading you should not base your trades on this. If you are not sure that you are going to make a profit you are going to be taking unnecessary risks. When you do this you are more likely to lose on the market than to profit.