Trading psychology and risk management are very important in forex trading. Forex or crypto trading activities even you are a beginner or experienced trader generally always involve emotions.
Maybe you are a trader who has an extraordinary level of intelligence but surely that it will not be very useful in trading if you can’t control your emotions. And you can’t trade based on risk management.
In fact, you might be surprised if you meet a trader whose intelligence is mediocre but able to gain more profit and be more consistent than you because he has good emotional control.
In fact, many traders fail because they cannot control their emotions.
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Trading psychology importance
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Trading psychology and risk management are very important, although there are some traders who said if this is an exaggerated problem.
To get optimal profits in forex trading, it is a very good point to have knowledge about theoretical abilities, use accurate strategies, follow political and economic news, and also study all impact on market trends.
However, all these skills can not guarantee success in the market, if not accompanied by an understanding of trading psychology and risk management.
Not only about how to do the analysis using indicators, but emotions traders also influence their trading results. Every person if wants to make Forex trading as a source of income.
They must understand that learning the psychology of trading, self-control, keep trade with measured risk management and discipline is the key to forming a quality trader.
Some kind of psychological condition of a trader
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Learn your own selves psychology, and find the most dangerous the worst psychology that causes the big loss in single trades, and then avoid these bad psychology then apply risk management strictly.
- Greed. This is a type of dangerous emotion that often affects beginners and experienced professionals who cause them to trade with a higher risk in hopes of getting high profits quickly.
- Excitement. Too happy when getting profit can also affect the emotions of traders, they might be able to be overconfident and trade with high risk.
- Fear. This is also a psychological problem that can cause failure, excessive fear will disrupt the trading plan, and this can disrupt the whole trade.
- Too much hope. When faced with floating loss, sometimes traders will expect that prices will return to the early track, and reach the target plan at the beginning, but sometimes they do not realize that they cannot control the market, with too much hope and without stop loss, this can be causing orders to be dragged into greater losses.
Beginner Mistakes in Trading Psychology
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Beginners can take lessons from Patrick Stockhausen. He is a trader and trainer, also uses this trading psychology to succeed.
In the past, he grew up in a poor family and dropped out of school at the age of 16. However, because of his understanding of trading, business, and human psychology; he was able to be financially independent at the age of 30 years.
According to Patrick, the beginner’s mistake is they do not love trading and financial investment, even though this is one of the important characteristics of successful traders.
The majority of successful traders love what they do. They enjoy the profession. Money is just a way to “keep score”. Most beginners enter the market with a consumer mindset.
Thus, money has the meaning to get a pair of training clothes, rent a house, and others. Therefore, money is not about how well they trade. Then learn some technical analysis, and this is where they start making mistakes.
If you see a certain pattern in the market, then see it like a gambling machine: this is a sure signal, then my trading must be successful. you felt confident about your decision.
In fact, there is a difference between gambling and trading. gambling, you bet and hope to win. In trading it’s not like that, we analyze the patterns that emerge, then open positions, then we expect to win.
However, trading based on technical analysis is not designed to inform you of what will happen afterward. Rather, it is designed to bet on the likelihood of your victory in a series of trades.
Professional traders accept random results from each trading position. However, beginners attach importance to each transaction and attach meaning to each trading position.
If it fails, they start calling themselves losers or saying that their system isn’t working.
How to Overcome Trading Emotions
Successful traders have rules that always do as scheduled in there work, some of these rules are
- Keep trade with money management, taking into account current price zones and compliance with money management rules. This will help minimize risk.
- Created Trading Plan. Calculations that are thought out carefully and in detail, will keep you from trading emotions. You cannot deviate from the planned procedure. Sometimes it’s better not to take any action, especially when the market is volatile.
- Competent traders always know when to act and when not. I need to be consistent and practice repeatedly in order to master new knowledge. The time needed varies from one individual to another.
- Risk management will always be counted. The trader eventually will realize if not always they will become winners, sometimes the market against the position. And as trader needs to know when to cut the loss position.
In fact, half a year is sometimes not enough to understand certain market sentiments and trading strategies accordingly.
Therefore, theoretical knowledge must be following by practice.
7 Trading Psychology taught by Richard Dennis
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Richard Dennis is a successful trader teacher figure who provides a number of tips so that traders achieve optimal trading psychology, famous for the Turtle Trading System.
What can you win and lose, what are the possibilities of either happens.
The first message of trading psychology is before opening a position in the market.
Every turtle is expected to have to know what he can win, loss, and how likely these two things can happen. According to the legend of these turtles, trading is only about the possibility.
Dennis considers that trading must be done by calculating the statistical results of the analysis for some time. Turtles call it Edge. In calculating the Edge will be known how much the possibility of trading generates profits or losses.
The existence of this Edge is able to make turtles become increasingly disciplined and believe in a trading system that is run.
Know what you are going to do when the market does what it is going to do
In the Turtle Trading Methodology, the complete trading system of the turtles has been explained.
This system, turtles are taught to be disciplined in trading.
In Dennis’s second trading psychology, turtles must to always know the right course of action that the market has given us.
Follow the rules because you are not special, no smarter than the market
Dennis taught hard that there is nothing special, or smarter in the market. In this case, Dennis always emphasizes to always follow the trading rules that have been designed.
Dennis believes, with a level of discipline following the planned trading system without involving feelings such as fear or greed, all traders can certainly succeed.
Impossible to happen every now and then
In the trading system used by turtles, the success rate is based on possibilities that are carefully calculated.
Stop Loss based on their trading system will continue to move according to the direction of market movement.
In addition, the turtles will also add their positions to trades that go according to their plan.
With the addition of the Stop Loss position and this, they try to anticipate the movement, both inline or not with their plans. This is part of the risk management plan.
Dennis advised Turtles, you will never know when the market will go in the same direction or not, you just have to prepare the best to take profits and reduce losses in the market.
How to handle profits properly is a separation point between the winner and loser in trading
The next trading psychology from Richard Dennis is how to process profits in trading by using good money management.
In money management, the turtles determine the transaction lot based on a percentage of their equity, then divided by the amount of the Stop Loss.
With the use of money management, as equity increases, the value of the transaction lot used will continue to rise.
Meanwhile, when equity decreases, the transaction lot value used will also decrease.
By using money management like this, it is proven that turtles can multiply their money quickly during good times, and not lose a lot of money during bad times
Trading is not about the frequency of how correct you are, but about the amount of how correct you are
Because of the nature of the trend follower and break out, turtles are always taught to enter certain market conditions.
They do not need to be present and correct in every position trades.
But they always get more in each position according to the plan of their trading system. Don’t focus on how often we open trades on the market. We should shift our focus to the huge opportunities that occur in the market. ”
Throughout my life, I have not known a wise person in terms of broad subjects who do not read all the time
The last trading psychology message from Richard Dennis for turtles that we can follow is a strong desire to continue learning.
Dennis considers there is no such thing as a teacher or mentor in front of the market. Therefore, we must always want to learn and update our knowledge.
Pay attention to his message, “What distinguishes real traders are traders who always hone their strategy, practice, control their emotions, and improve their abilities
A lazy and stupid trader will only become a victim of the market. ”
Psychology plays a high role in achieving success as a trader, this is very important to always be implanted in the minds of traders.
Even though he has extensive knowledge, a good understanding of market conditions, a good trading system, all of that will not help much in achieving success without good psychology.
There are three types of things that become successful traders, namely mind, method, money.
Traders must have a good mindset, a good trading system method, and good money management too, these three things must be built to achieve success.