Trading Psychology 101: Forex Trading Psychology & Basics

Although the field of trading psychology has had many books published, not to mention courses and consultants, I do not believe you have to spend years trying to master it. You can grasp it in a heartbeat. Good trading psychology is simple enough that it falls into the realm of common sense.

The psychology of trading revolves around making certain you maintain your discipline. Discipline, as one dictionary definition puts it, is “behavior in accordance with the rules”.
The rules in this case are the rules of your trading method. They generally fall into two categories: entry and exit rules and risk management rules. The rules could be highly systematic or discretionary, but as a trader, you have decision-making criteria on what gets you in and out of a trade (entry and exit rules) and how much you want to risk on each trade (risk management rules).

What routine is correct?

Finding the correct routine is a highly personal thing, so keep in mind that what works for you may or may not work for the next person. Still, I’d recommend making a set routine each day. Head to your desk at the same time each day, leave at the same time each day. Look for the same market indicators and news announcements each day, week or month. Doing this will help you develop a healthy understanding of the markets and how they move during the times you trade.

When creating a trading routine, it comes down to how you look at the markets. If you are shorter term trader, then last night’s action may be the most important thing to look at each morning. However, if you find yourself being more of a longer-term trader you may look towards scanning the recent economic announcements and geopolitical headlines to make a trading decision. Getting a look at the news certainly makes a lot of sense in both scenarios, but it just comes down to which type of news you are looking for. This is a highly personal decision as far as what routine is correct but suffice to say that you are looking for a routine that gives you the best results, and simply sticking to it.

You may also want to incorporate break times into your trading routine. You may feel compelled to stick to your desk, but many times stepping away is the best way to refresh your mind and create a new perspective towards the marketplace

What happens if I cannot stick to my desired routine?

There are two cases in which a trader would find it difficult to stick to routine. One is a case where the markets change suddenly, so the routine, by its very nature, changes. The other is when life circumstances change, and then the trading routine is forced to change. Many times, in these cases, traders find themselves in a situation where they can’t stick to the routine but choose to trade anyways because they think they could always be making money. However, the odds of success are much lower if you are out of your element, or in this case out of your routine. If for some reason you find that you can’t do the usual things that keep you profitable, then it might be best to simply sit on the sidelines and wait until you can – even if it means breaking from your routine.  A routine is great because it provides you with a framework. If the framework is shaky, don’t worry if you need to beak from your routine or take a break from trading.

• 1. You must know yourself to know your method.

  There are so many different ways and methods to trade, you must choose a method that suits your distinct personality. If you’re an impatient person, for example, consider a short-term plan rather than a long term one, as you may find yourself itching to close the trade before the best close time.  If you’re a morning person, make sure you don’t choose a strategy that will operate mostly during your night hours, as exhaustion may compromise your decision-making abilities.  Think about yourself while thinking about your strategies – this self-understanding will pay off

• 2. Find a broker that suits you.

  Do research on all the brokers available in your area and carefully consider what you’re looking for in a broker and what offerings you’ll be willing to compromise on. Make a list of questions and compare the answers for different brokers, so you’ll feel confident in your decision.  What are the advantages and disadvantages of each broker? What kind of platform(s) do they offer? Is the platform compatible to your chosen trading method? How is their customer service? Where are their headquarters located? These questions will help you find a Forex broker that caters to your specific trading needs.

• 3. Consistency is the name of the game.

  There are two schools of thought in analyzing the market and predicting future trends. Those who use technical analysis claim that the market is semi-consistent and has logic in its movements. Those who use fundamental analysis focus on the news rather than the market. Neither method is perfect, and good traders use both. But decide which methodology will be your primary method and stick with it.

• 4. Play close attention…to the time frame.

  Most Forex traders spend lots of time looking at charts of the Forex market. There are many different types of charts but they all show basically the same thing. It is most important to pay close attention to the time frame of the chart you decide to use. A good rule to follow is to use a longer time for direction analysis and a shorter time frame to decide entry and exit into the market. Check out our videos to learn more about understanding the charts.

• 5. Make educated decisions.

  To make sure you are making the right decisions, you need to calculate your gains and losses every so often. Take a look into your trading history- how many winning trades do you have? How many losing trades do you have? Then calculate the total amount traded in all your trades. This is an especially good idea to do if you are still learning about Forex trading. Check all the times your system indicated that now would a good time to open a position and whether or not you profited from it. Write everything down! It will help you make the right decisions in the future.

Primary Functions of Metatrader 4

Once a demo or live account is up and running the tick-by tick price changes in that broker’s price feeds can be displayed and analysed within the Metatrader 4 platform. The primary uses of Metatrader 4 are:

• Trade Execution
• Display of live Forex charts that show price changes tick by tick
• Provision of analytical charting tools including all the major indicators, allowing technical analysis by the user of both live and historical Forex charts
• Provision of news and alerts that can be customized by the trader
• Display of current open trades and closed historical trades
• “Auto-trading” by “expert advisors”
• Tool for the creation of customized indicators and “expert advisors”
• Back testing trading strategies with historical data

FAQs