In the real-time world of Forex trading, where bets are made and lost in the blink of an eye, apprehending the emotional roller coaster is essential to mastering your mind and achieving entrepreneurial success.
The psychology of Forex trading is a complex and multifaceted area where emotions can play a significant role in determining the outcome of your trades. In this article, we will delve into the complex world of the emotional roller coaster of currency exchange trading, exploring various aspects and offering valuable insights from multiple perspectives.
Psychology and Finances
Psychology in bargaining is one of the most prominent elements of any operation in the financial markets. As a rule, traders who have formed high-quality financial hacks do a bad job for psychological reasons.
These mistakes can be traced among a large number of newbies as well as more experienced traders. This means that they are caused by something much deeper than personal experience and subjective perception of the markets.
Trade and Fear
One of the main causes of mistakes is fear. Enjoying a lot of independence across their trading journey, all traders can suffer various negative emotions when trading on a real account. Therefore, when it comes to making decisions on a live active market, instead of the areas of the brain responsible for rational thinking, the hypothalamus takes over, deciding the situation in the “fight or flight” mode. At this moment, the broker is driven by fear which leads to financial losses and risks.
Some traders do not think long-term. They seek to close a position with a short-term profit or loss as soon as possible and are not prepared to focus on long-term dynamics. Social studies confirm this phenomenon: 75% of children would rather be given one candy today than two candies the following day.
Emotional Palette in Trading
Many traders feel quite confident and relaxed while the market is closed. However, as soon as real trading begins, these same traders may experience versatile emotions.
When faced with the need to make real trading decisions, feelings can very easily prevail over logic. Therefore, it is very important to be able to control them.
We invite everyone to test themselves: to what extent are you subject to one or more of the prejudices below?
- Tendency to overconfidence.
- Tendency to make “today’s” decisions based on “yesterday’s” conclusions.
- Tendency to avoid losses.
Anchor Effect
How do you think the market will behave tomorrow? Will the average volatility and strength of local support and resistance levels remain? If you are ready to give a clear “YES” answer, then your judgments may be subject to the anchor effect.
In the psychology of trading, the anchor effect is the desire to judge the future based on the past. In other words, a trader may believe that tomorrow the markets will move exactly the same way as today. Only usually traders cannot explain “why”.
Why can the anchor effect harm trading? The main reason is the trader’s excessive confidence in the repetition of the scenario of the previous day/week/month or other time. Hoping for a repetition of the situation, a broker may calculate risks and profits less competently than in a situation where he is not subject to the anchor effect.
The Vicious Circle of a Newbie Broker
- Search for a system elsewhere.
- Trading for a week
- First losses with a few initial transactions.
- Anger since the system did not bring the profit.
- Finding a person to blame.
Exit from the Vicious Circle
It is recommended for a complete newbie to study the system and test the strategy from its beginning to the end.
If you select the most suitable strategy, you will gain confidence as well. The next step is connecting cash management and building up your approach to Forex trading that reflects your temperament and unique features of character.
Demo Accounts and Confidence
A Forex demo account is specially created for those who experience negative emotions while trading in real-time and would like to try virtual money without risks.
If you’re familiar with games, think of a demo game as a simulator. As a simulation game, demos allow you to play on a computerized simulator. The virtual trading environment allows you to become familiar with the platform, as well as develop and refine trading strategies.
This demo account allows you to gain confidence in your trading decisions since you can trade without worrying about deals. If you select JustMarkets as your initial trading platform, the JustMarkets account opening will turn your trading journey into a hassle-free experience as well as meet your key targets.