Understanding all the Psychological Aspects of Trading

Understanding all the Psychological Aspects of Trading

Frustrated Forex Trader
There are many skills and characteristics makes a successful forex trader. However, none is more important than the ability to maintain discipline and control emotions. Successful trades, contrary to popular belief depend mostly on the trader’s mindset. Beginners can learn from the distinct ways winning and losing traders think.
A trader is always darting in and out of stocks and most times, you have to make quick decisions that require a certain presence of mind, discipline and negation of emotion to stick with an established trading plan when making trading decisions.
Forex websites want you to believe that if you buy a robot-based trading system from them or other trading product, you will make money in the market. A good trading strategy, while important, is just one part of the whole. The core of your trades depends on containing your emotion and managing your trades correctly to make long-term profits in the forex market.

What are the key emotions most traders exhibit?

Emotions are the greatest enemy for any financial market trader. When you give in to fear, it affects your ability to make clear, logical decisions. You enter a place of comfort, blame others for your errors and look for magic indicators with quick solutions.
Fear is easily the most common emotion traders face, especially new traders. After significant losses, a trader feels turmoil and emotional distress. Fear demobilizes you from applying your technical skills, paralyzes and causes you to make decisions out of fear. Sometimes, a trader makes a high-risk investment and experiences huge losses. The desire to trade might be strong but the mental response is overpowering. Fear causes traders to:

  • Hang on to losing trades in the fear of loss
  • Cut winnings short to avoid giving back profits
  • Jump into careless trades because you don’t want to leave money on the table
  • Hesitate when making final decisions because you fear losing money.

Greed: Greed is good because it makes speculators want to trade but it is bad when traders chase the market. Many trading accounts have suffered because of greed as the excessive desire to acquire handsome returns drive you to make dangerous trades. Some experts consider greed as the most dangerous trading emotion, worse than fear. While fear might paralyze you from trading, your capital is secure but greed pushes you to act outside of strategy. Such as overtrading, overleveraging, holding on to trades and other irrational decisions.
Revenge: There is nothing worse for a trader than the feeling of revenge. You triple down and dig yourself deeper into a position until the stock breaks even for a small profit or you experience a fatal loss. The feeling is usually triggered by experiencing unexpected loss such as dramatic move from a big win to big loss.
Euphoria: Euphoria is that feeling from making a huge profit from a trade. While it’s a good feeling, it causes inexperienced traders to feel overly-confident, which leads to losing streak right after a string of wins. The danger for any trader is to forget the golden rule, trading is a speculative market and any trader can lose.
Tired Worker

How can I manage emotions when trading the Forex market?

  • The ego never learns. It denies loses, does not admit wrong and is quick to shift blame. Always follow your strategy, never your ego.
  • To overcome greed, accept that not every decision will be the right call. Many successful traders attribute their success to luck rather than skill because they know the dangers of giving into the ego when trading. The market is bigger than you so focus on your trading plans instead of being greedy.
  • Accept negative feelings that you try to internalize instead of ignoring them. By facing negative feelings such as fear and greed, you show no importance or significance to these feelings, which allows you to focus on positive goals.
  • Find new activities such as meditation, yoga, sports and other physical actions that help to clear the mind of stress.
  • Anger makes traders vengeful, so locate the source of the anger and unload immediately. Otherwise, you might make some grave errors through revenge trading.
  • Have realistic expectations when entering a trade to prevent greed from taking over.
  • After a frustrating loss, step back and clear your head. Identify what went wrong and take note of your physical triggers such as angry outburst, screaming at your dog and biting your nails. Never give in to the urge to “try your luck”. Always trust your tested system and trading plan. The hardest part with a loss is to ensure that it does not affect your next trade. You must be practical and unemotional when making trading decisions.

Emotions affect your decisions, even when we think otherwise. Remove biased inputs, have a clear, well-thought strategy and learn from your mistakes every time you lose. Knowing the operations of the market will help you overcome greed, fear and other trading emotions. You can base your decisions based on the probability of outcome for objective decision-making, not centered on emotions.

How do I manage my trading expectations?

Forex Trading Chart

Trading is a game of possibilities

There are no magical techniques or surefire winning tips to trading as even the “gurus” lose. True successful investing isn’t’ taught in a book or contained in a tool, you must experienceit, make mistakes and learn as you go. Trading is a marathon, not a sprint.

Review your goals

The indicator for success does not have to be measured in profit and loss. A sharp difference between successful traders who consistently make money and those who lose is that losing traders fixate on profit rather than trading.
A popular trait of successful traders is their focus on becoming good traders; hence, if you want to make regular income from trading, control your risk per trade. Some investors are lucky to find quick success but forex trading is harder than typical stocks. To find results, you must review your goals and what you intend to gain from the market.


This is perhaps the most important skill for every trader. You should possess the self-discipline not to becarried away by a trading news, market volatility or panic, all of which leads to bad decisions. You mind should be disciplined to always follow a trading plan, no matter the outcome.
Two Forex Traders analysing the market trend

Healthy expectations

If you go into trading expecting to become a millionaire within a few months, you are bound to be disappointed when it does not happen. Start small, build yourself, learn how to set a trading plan. Celebrate small victories and keep a proactive mindset, which is required for stormy days when trades are not going according to plan.
Healthy expectations help you determine differences in marketing schemes with unattainable results. Making huge profits is not a trading rule but an expectation so be patient and give it some time.

Set personal goals

Trading expectations are rooted in your personal goals as most of Forex trading deals with self-motivation and personal drive. Personal growth drives continuous growth and is essential for optimizing systems and executions. To set lasting personal goals, use a personal development plan to master Forex trading.
Forex Goals

Learn your limits

To set healthy expectations, you need to know your limits for all aspects of trading. A few questions to answer include

  • What personal schedule is best for trading multiple markets?
  • How much capital am you willing to invest in trading?
  • How much time can you dedicate for a complete forex education?

Create a trading plan

The first step to becoming a successful trader is to gain thorough understanding of your area of interest. If you are dealing in pharmaceutical stocks you should become knowledgeable in that field, same as trading heavily in telecom stocks or energy stocks. Attend trading seminars and sell-side conferences. Conduct your own research by studying charts, reading trade journals and following industry analysis. A good way for traders to learn is by experimenting within reasons. Once a week, review your performance and individual positions to help you correct mistakes and enhance profit. Components of a good trading plan include:

  • Assess your skill by paper trading your system
  • Be mentally prepared, psychologically and emotionally or you might make rash decisions if you are distracted. Find your market mantra to repeat before you start trading.
  • Set risk levels and realistic goals
  • Set exit rules and entry rules
  • Check trends and forex news each day. Never trade ahead of an important economic report as it is an unnecessary risk.
  • Keep records of every trade to help you review profit and loss and see what works best.

5 habits for successful trading

A happy man

  • Focus on risk management instead of chasing profit
  • Create a well-tested strategy and aim for flawless execution with each trade.
  • Learn from your mistakes
  • Have positive, realistic expectations
  • Be passionate, determined and humble
  • The only approach that works well is discipline
  • Think probability and percentages to limit risk. Never rely on luck.


While charts, books, trends and forex news are important aspects of becoming a good trader, psychological components play a larger role to determine trading habits. Setting rules, creating a plan, managing expectations, avoiding newbie mistakes and gaining experience instead of focusing on profit will help a trader overcome psychological problems you are bound to face in the forex market.