Mastering one’s emotions is the single most essential factor in determining whether or not you become a consistently successful Forex trader. This article will provide you with some useful insight into how you can start mastering your emotions and get on the track to successful Forex trading…
Successful forex trading depends upon a trader’s ability to consistently make decisions that are completely uninfluenced by emotion. When interacting with the market most traders become influenced by how they are feeling, it is overcoming this mistake of letting our feelings about the market influence our trading that fosters a successful trading mindset.
This article is going to give you an awareness of the biological similarities that we humans share which allow us to both commit emotional trading mistakes as well as overcome them with the proper training and information. Without down-playing the significance of the psychological difficulties that are an inherent aspect of forex trading, we are going to provide you with some concrete insight into why all of us have the potential to become successful forex traders by explaining the commonality of our brain functioning, as well as some tips on how you can attain this seemingly elusive trading success.
Battle of the Brains
In the world of evolutionary biological psychology, it is a well known fact that the frontal lobe of our brain is the newest area of the brain and also the part that is responsible for giving us the ability of complex reason and planning. Our older brain structures that evolved to serve us well in the era of early human existence are essentially designed for fight or flight functions, which served us very well for thousands of years, and still do for some aspects of modern day life. However, it is also these same fight or flight brain structures that give us problems while trading the markets.
The reason our fight or flight brain structures cause us problems while trading is because they induce emotion-based, or feeling-based trading. The issue here is that it is nearly impossible to think objectively and logically when your body is primed for action, your adrenaline is pumping and you are in fight or flight mode. When we have money on the line in a trade, it is a very delicate situation that can easily lead our fight or flight brain to flare up, and essentially over-ride our frontal lobe intellect and reasoning. Our older brain structures and nervous system are wired to work in such a way that they can override the objective and deeper thinking parts of our brain in case we get into danger and literally don’t have time to “think”. For example, if you accidentally put your hand on a stove burner that you mistakenly thought was turned off, you aren’t going to stop and think about what you are doing, you are instantly going to pull your hand away and probably scream without even thinking about it.
As Forex traders, we need to be aware of these basic concepts of how our brains work because once we get into the cycle of emotional or “fight or flight” trading, there is really no escape until you lose all or most of your money and “snap” out of the emotional trading cycle.
Trading success is about mind and emotional control
Traders are often told they need to control their emotions to achieve success. While this is well and fine, most people that preach this gospel never really tell traders HOW to do this. Different situations require different techniques for controlling one’s emotions. Since trading involves having your money on the line and it possibly going up and down, for and against you, before the trade ultimately plays out, it is critical that you not allow yourself to be influenced by this natural ebb and flow of market movement once you enter you trade. Even IF you manage your risk extremely consistently and only risk a tiny portion of your account on each trade, if you sit there and watch your trade play out after you have executed it, you are probably going to induce your “old” brain and begin to feel emotion.
This is why you need to plan your trades thoroughly before entering them, leave no stone unturned, cover all your bases prior to putting your money on the line, and then let the trade play out with minimal involvement. The primary way to avoid trading with the “old” more primitive fight or flight brain structures, and make sure that you trade with the “new” objective thinking frontal lobe part of the brain, is to make 100% certain you plan out your trade before you enter it.
You essentially have to “outsmart” your own brain by realizing and accepting the fact that you will never be MORE objective and logical than when you are NOT in a trade, therefore this is the BEST time to plan your trade out. Staying in this objective mindset as much and as long as possible is what makes a trader consistently profitable. Since your trading accuracy directly depends on your ability to remain objective when making forex trading decisions, and objectivity is a function of planning your trades before entering them and NOT looking at them for hours on end as they unfold, it goes to reason that there is an inverse correlation between time spent looking at the markets and trading success. Meaning, assuming a certain basic level of Forex trading knowledge, spending increasing amounts of time beyond this level, either analyzing market variables or watching your trades play out, will cause you to lose money over time.
Simple vs. Complex Trading
Above and beyond planning your trades before you enter them and not meddling with them after wards, the next biggest contribution to remaining objective and thinking with your more advanced frontal lobe while trading is to use a simple trading method. Many Forex traders do themselves a huge disservice by trying to use overly complicated trading systems that cloud up their charts with lagging indicators or trading software programs. Once you start to become confused or frustrated with your trading method you greatly increase the probability of trading emotionally and becoming less objective, and thus losing money. It is critical that as Forex traders we do everything within our power to think clearly while making trading decisions and not elicit our fight or flight brain structures.
The best method to maintain such simplicity and clarity while trading is price action. When we use simple price action setups to trade the market we are giving ourselves a much greater chance at remaining objective and calm and thus, profitable. Choosing to learn how to use price action setups on a simple plain vanilla price chart is a decision that you can make which will greatly increase the likelihood of you not falling into the trap of emotional trading mistakes. The other aspect is that you learn to “set and forget” your trades, which means you plan them out before entering them and do not attempt to unnecessarily meddle with them afterwards. We all have the ability to make these decisions, this is the good part, it is up to you whether or not you choose to make them, and apparently most traders don’t. So the first thing you can do to set yourself apart from the crowd of losing traders is to secure an education in a simple yet effective trading method like price action, to learn more, checkout my price action trading course.