Forex market psychology and Forex psychological levels
We always hear people saying to control our emotions and trade carefully but we never learn to define Forex psychological levels until we realize what they mean in fact. Below we will discuss this issue of Forex market psychology in details.
Consider an example where we know how emotions lead you to lose:
Suppose you have $500 of capital and you are trading. You took a high risk and thus you have lost $200. What finally remained is $300, you get frustrated and open again with an even more risky trade. Again you lose and come to $100. By following the same pace, you will end with zero balance. That is how psychology matters in the trading forex.
Let's analyze Forex psychological levels. You started with capital of $500 and lost $200 with $300 remaining. Your intention is to recover losses immediately and this is what we call an emotion. You have only thought of recovering money and you do not even think whether that situation is suitable for opening a trade or not.
If you fail to control your emotions and comply with the basic rules of Forex market psychology, in the end it will have a major impact on your life , so try to stay consistent and control your emotions.
How emotions can be controlled: we should prevent ourself from being emotional and some of the following recommendations might be useful.
Firstly we need to invest what we can afford to lose and should not invest more than amount we can afford to lose. When you invest what you cannot afford to lose, you have a pressure of the idea that your money are to be lost. It can result in the situation we described in the above example.
Suppose if you lost money in a trade. Then, don’t make another trade in a hurry or frustration, stay cool and take time to enter next trade with careful analysis and enter at right time.
Conclusion: Emotions play a key role and will determine your trading. Stay cool and when loss occurs, wait until there is a perfect moment to enter another trade.
The above article is for information purpose only and is based on personal opinion of article writer.
Forex money management system intends to define the amount of money you can afford to lose while trading Forex. In other words, it can help you to save your money and protect your Forex deposit. During Forex trading, a trader has to think not only about the time of opening and closing positions, but also about the trading volume. A trader’s chances to save money can be improved due to a careful calculation of the maximum profit and maximum loss that he or she can afford. If you ignore basics of a money management trading, it turns Forex trading into a casino and gambling with respective consequences. To make your trading long-term and profitable one, you should create your own Forex money management system.
There is a number of generally accepted money management rules on the Forex market. According to one of them, the maximum loss received from one trade cannot exceed 5% from your deposit. This rule protects a trader's deposit from a shattering blow, which could be caused even by one trade if the market trades against you.
The second basic rule says that it is highly recommended to use a diversification principle. It means to avoid using trading instruments with a similar behavior at the same time. Due to this recommendation you can compensate the loss from one trade with the profit from another one. According to the typically movement of currency pairs, they are divided into the following groups: Dollar area, British sterling pound area, Yen area and Euro area.
Before you open a position, make sure that you follow these rules:
wait for not only the main signal for opening a trade, but at least one more confirming signal;
keep a trading journal, where you should write down the exact entrance price, signals that you use to open a position and conditions and prices that give signals to close a position.
Every trader has his or her own approach to the Forex money management. There is no universal method working for all traders. One we can say for sure: a money management system is a save boat for all who found themselves on waves of the self-willed Forex market.