The most important moment in the buying and selling activity is the trader's psychological attunement. Suffice it to say that traders, when trading with a virtual account (with virtual money) often present very satisfactory results, but when they switch to real money their results get considerably worse.
Demo Accounts and Trader Psychological
What's going on here? We are talking about the same trader, the same quotes, the same tools used, however, we get two very different results. The answer is simple: when dealing with real money, psychological factors come into play and the trader starts to depend more on his own feelings of fear and greed, which are also called 'engines of market'.
It's precisely these two feelings, often contradictory, that do not let the trader calmly and sensibly assess the situation, carefully close the loss positions or fix the profit. Market panic leads to extreme changes in currency exchange rates and, many times, this movement is not exactly a reflection of real processes resulting from one or another world economy. It makes sense to recall here the definition of «Reason of the collective”: the ratio of the crowd is equal to the ratio of the least developed representative of that crowd.
And when we talk about a large number of traders, which represent both individual entities and all kinds of investment funds, financial houses or banks, so the general disposition of this crowd is often exposed to the action of the feeling of panic, notwithstanding the logical reasoning of the sensible trader.
And if we can understand this general psychological feeling, then the probability of success of our transactions will grow considerably.
Psychological Disposition of the Collective
For the time being we are talking only about the “psychological disposition of the collective”. And if you want to see, understand and use this general state of mind to the benefit of personal transactions, then this is possible if we observe the reactions of the market to the events taking place in world politics and economy and even in Nature.
It will be much more difficult to curb our own psychological inclination when making a decision to buy or sell a particular currency. When making the decision, the novice trader has in one of the scales the intuition, steeped in emotions and, in the other dish, the normally impartial knowledge generation , devoid of emotional basis and based only on objective facts and events.
Which way do you think the scales will tip? Of course on the intuition side! But intuition will be new as long as it cannot be based on experience and practice. Due to this the resolution is often taken based on the emotions – being the main enemy and assistant of the trader.
How then can you learn to regulate your emotions, to minimize the influence of stress at times when they can be harmful? The answer is – improving the trader's discipline. Only a disciplined trader can work the market as long as necessary to achieve his goals.
Only discipline will make the trader don't go broke under the pressure of the market and it alone won't let you out of it before your time. There are many techniques to strengthen trader discipline, they are: a cadenced work chart and the choice of time intervals to work based on your specific psychological particularities.
Following the trading system signals is not an easy task either. For this, it is necessary to understand well that the situations for a favorable moment to enter the market will always exist and will always be repeated while the market «is alive».
But many traders, falling into the temptation to "jump onto the running train" enter the market either too early or too late, which will inevitably lead to losses and psychological upset.
Working with financial tools and instruments is not easy, in the first place due to the strong negative action on the psychological state of the trader, who suffers in the first person the loss of money resulting from a failed transaction and who is exposed to uninterrupted psychological pressure.
You will probably be surprised to learn that often the premium can also exert a negative action on the psychological state, when the trader, having entered the market well, closes the position at a profit. In this case, the danger may be related to the over-evaluation of his qualities as a trader, which usually results in a decrease in his alertness.
By calling the result 'premium', we want to purposely draw the reader's attention to precisely that notion of gain, since the result of the last profitable trade is often understood by the trader as the total gain, although we can only speak of "gain" as the result of a few transactions over, say, a month or a long period of time. In this case, we average all positive transactions and we can then speak of a transaction positive average and an overall profit.
The results of all negative transactions must be equally accounted for – we must also obtain the average loss and, in addition, also show the total loss. The total income, already discounted from the total loss, is the profit obtained for a certain period of time and it will be this money that we will equate to the means earned.
If the trader operates primarily with notions related to the overall result and does not constantly appeal to momentary gains, then this approach will reduce the psychological pressure resulting from each transaction made, «averaging» his action over a long period of time, in a month or in a quarter.
What is the XM Forex Broker Loyalty Program?
[box_text] Forex XM Broker Loyalty Program - Trade and earn XM points that…
The Four Trading Signals You Need to Master
When it comes to the scope of Forex trading, it is very clear that all traders…
How to Open a Demo Account at XM Broker
[box_text] This lesson is dedicated to explaining how to create a demo account on the Forex broker…
Trading Psychology: Profit Targets in Forex
[box_text] Closing a trade at the most favorable price level is just as important as entering…
Beginner Traders Guide (HK50)
[box_text] If you have never traded the HK50, you may be missing a great opportunity to capitalize…
Forex Hedging (Hedge)
[box_text] Investors of all types use hedging as a strategy to protect…