Psychological traps

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In trading currencies, the same as in trading other instruments like stocks, there are rules to follow just like there are in other professions. As some of us aren’t destined to paint, make furniture, or be miners, similarly not all of us are good at being currency traders.

It is a truth but some of us will try hard but won’t be able to control our reactions and emotions while others of us will regularly earn profits. You do not have to be Chopin to play the piano. Even though the percentage of truly outstanding traders is small, there are also plenty of traders who are good or at least are good enough. So the situation here is similar.

Like pianists, traders don’t appear out of thin air – each of them learned, trained and then achieved successes and then were able to enjoy the fruits of their work. At the beginning of my adventure with forex, I heard a statement that to be good at trading currencies it’s necessary to train at least one year.

In those days it was an abstract thing for me – I couldn’t imagine how a person could devote so much time to something so seemingly easy. Now I know it’s the sheer truth and it’s not about learning how to use indicators, trading systems, and signals bought somewhere or how to operate a broker’s platform.

One year of training is necessary to get used to market and learn how to control emotions in order to use common sense and logic instead of emotions and bad intuition. Let’s have look at the most common psychological traps of beginning traders.

 

Speeding up

The proximity of huge fortune is sometimes unbearable. It was enough to buy here and sell there and I would have been able to afford a new car. The prospect of fortune covered by numbers and prices that causes the state of euphoria with good positions and frustration with bad positions.

Both the feelings are destructive as far as further trading is concerned. When we suffer a loss our frustrations order us subconsciously to make it up as quickly as possible. The next position we open unwittingly and it is usually a bigger position in order to compensate for the loss and to gain at least a small profit. Our losses will continue to accrue – until we lose everything.

The same is with euphoria. If one position earned us a profit, we assume that the next will also. So by speeding up on one position we can lose what we gain on good decisions. How can we fight against speeding up? There is only one remedy – feel neither frustration nor euphoria. It takes time and requires work but it is a necessary step that every trader should go through.

 

Golden Grail

The multiplicity of technical analysis indicators is overwhelming. Moreover, each day the new indicators are created at the same pace as new golden trading systems. Each forex trader creates its own trading system, which works good enough. However, everybody wants to make their creation even better – and the same situation occurs.

Trading systems or strategies become bigger and bigger involving numerous indicators and this creates confusion. This only illusory feeling suggests that it has to be perfect, golden system – the Golden Grail of foreign exchange. Searching for the perfect system becomes soon the most important aspect – and after a month we cannot say exactly how our system works not to mention explaining it to others.

We spend days and nights looking at charts and indicators and we only that we were right but…. Of course searching for the perfect system isn’t bad at all, buy we have to do it in moderation. The most effective systems are the easiest ones that generate not more than a few signals a day. We have to remember that the whole trick is not to trade often but the trick is to trade efficiently.

 

Self-belief

As in other aspects of our lives also here we have to remember about the golden mean. We have to trust that our decisions aren’t emotional and we have to take into account others’ opinions. A good technique is the use of recommendations that are available on different websites in order to confirm the signal generated by our trading strategy.

We cannot always rely on “specialists’” opinions as they make mistakes more often than we suppose. However, two heads are better than one, not to mention more heads. It is good to start with looking through daily recommendations before we start trading. Most of the analyses and prognoses can be simplified to three statements: it will be growing, falling or it will be sideways. If the average will be the same as our calculations then we can start trading.

 

Fast money

The aspect is about objectives – the monthly profits we want to achieve. Everybody wants to double their capital each day. However, the sooner the beginning trader will understand superiority of relatively small but consequential profits over spectacular explosions of profits accompanied with huge losses, the easier for them will be trading on the forex market. In short: the larger the planned profits – the larger the risk.

Very good traders achieve around 10-20 per cent yearly profit. You can say: “it’s not a problem- I can earn it in one day”. The point is how much you will lose if you won’t be able to earn as much?

We have to remember that consequences and discipline so often mentioned in numerous works are really very important in trading. They don’t give you a 100 per cent guarantee – maybe only 50 per cent. The second part consists of: inborn talent, good luck and of course knowledge and training.

Training with market (either on demo or live accounts) is the best way to create trading strategy and the whole trading profile. While practicing you can observe your own emotions, so that they won’t have impact on decisions you make. In the course of time euphoria will change into satisfaction and frustration will disappear completely. Losses from time to time are the part of trading – it’s a part of its nature.

Accepting them without the reflection of emotions leads to success in forex trading.