Most people who approach the forex market as traders want to be a success in terms of making money from the endeavor. This tends to be the primary motivating factor behind people’s decision to become forex traders.
It can really help motivate traders to get clear about the goals that they wish to achieve from their forex trading efforts as they approach the market.
Studies show that one of the most important determinants of success in forex trading involves the mindset of the trader. Therefore, cultivating the optimal trading mindset for long-term profitability is a key element in developing your skills as a forex trader.
Furthermore, trading essentially reflects a person’s overall personality and trading psychology. The way that they trade and what they get out of the trading experience ultimately tends to reflect what they were looking for trading to provide in the first place. In this article we will talk about trading forex confidently and with the right mindset to succeed with your trading.
Traders Can Benefit From a Higher Level of Self Confidence
One thing that many successful traders seem to have in common is a strong sense of self confidence that cannot be readily shaken even if they make a few losing trades.
Furthermore, having a high degree of confidence in their abilities to adapt to new situations allows them to be more flexible as traders, which can be a very useful trait when dealing in the often changing forex market.
Traders with a higher degree of self confidence also tend to be more adventurous since they are willing to make mistakes so that they can learn from them and turn the initial loss into future profits.
Such traders can not only often discover new ways to make money from the market, but they are willing to take the risks necessary to do so.
On the other hand, having low self esteem and a lack of confidence in your abilities as a forex trader can impede successful risk taking. A low degree of confidence can ultimately lead a trader to affirm this mindset by losing money.
Higher Confidence Levels Often Mean Higher Profitability
A trader’s confident and disciplined mindset is perhaps the most significant determinant of their success as traders, and accounts for as much as 80% of their success potential, according to some professional estimates.
As famous trader and Market Wizard Ed Seykota once wryly observed:
“Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money.”
Accordingly, it can really pay to keep your confidence level up when trading and to keep your goals firmly focused on increasing your net profitability while managing your risk appropriately and improving your lifestyle at the same time.
Avoid Taking Losses Personally
No matter how good a trader you are, the fact remains that sometimes your forex trades will win and sometimes they will lose.
As a result, it can really help a trader to avoid taking their trading losses personally or reacting emotionally to them, since doing so can be very tiring and hence counterproductive to their trading success and enjoyment over the long run.
After all, losing money when trading forex is not a personal insult, you were just wrong on the market. Losses happen to every trader – even the most successful ones – so the trick is to keep your trading losses smaller than the profits you make on your winning trades.
Basically, the key to successful forex trading is not to avoid taking losses, but instead to keep to and refine your trading plan while at the same time maintaining the confidence necessary to step back into the market to make another trade.
Watch Trading Risks Carefully
Interestingly, having a good trading plan only comprises one part of the overall trading game and optimal trading mindset. Another key element involves knowing what to do when the going gets tough. This aspect of trading will eventually distinguish a successful trader from the other high percentage of unsuccessful forex market participants.
Generally, forex traders will risk between 1% and 5% of their trading account’s value on any given trade. Also, by always risking the same percentage, the trader’s trade size will tend to grow along with the equity in their account.
In order to effectively trade with stops, the trader would do well to examine technical indicators and other trading signals and to place stop-loss orders accordingly, thereby maintaining a more objective mindset when trading.
The Importance of Money Management
Because of the volatility often seen in the forex market, a trader without a sound money management component to their trading plan could be likened to a skydiver without a parachute. In the event of a string of losing trades, the trader’s account balance will drop much like the ill-fated skydiver without the benefit of a parachute to break the fall.
A large percentage of people that begin trading in the forex market fail mainly because of lack of discipline and poor money management. Without knowing how to deal with losing trades, many novice traders start “chasing money out the door” by committing a range of typical money management mistakes. Eventually they can end up losing a lot of money, perhaps even their whole trading account.
Managing Your Trades Wisely
Furthermore, since trading inevitably involves making both profitable and unprofitable trades, knowing how to manage the unprofitable trades suitably tends to matter more. When trading profitably, the money tends to take care of itself, but when a trader encounters a series of losing trades, their mindset needs to include having an objective exit strategy. Also, knowing when not to trade could easily save their account from ruin.
Basically, good money management is not only essential for forex traders to learn and practice in order to develop a successful forex trading mindset, but it can benefit just about any business endeavor. In fact, even people that do not trade at all can often profit considerably from learning how to manage their money better.
Further reading:
Read more on trading psychology and why most traders fail.
Read more on money management here.
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