|
Forex Trading Psychology — The Art Of Mind Control
by Kent Douglas
Indeed, you really do need to
hone your skills at self-discipline and become a virtual Zen Master if you truly
want to succeed in the fluid Forex market. Trading 24 hours per day (the market
does close from Friday afternoon until Sunday) thanks to a network of
inter-linked computers in financial institutions around the world, the Forex
market is by far the largest and literally dwarfs the commodities and futures
markets. Nearly 1.8 trillion dollars change hands each day and you can profit
from the interchange of currencies—if you can control the four most dangerous
emotions that tend to cloud judgment and cost you profits. These four emotions
include:
• Greed
• Fear
• Hope
• Faith
With the right investment strategy, the Forex market can certainly be very
profitable but greed is always a factor in any human endeavor—especially
investing. Greed causes perhaps the greatest problem when it comes to investing
in the Forex—overtrading. When an investor overtrades, there is a greater
potential to risk too much and enter too late in the trend. Back testing should
identify trends and help you determine whether the window has already passed so
be sure to stick with your investment strategy and remember that the market is
always right—greed can cloud our judgment quicker than anything else but
self-discipline and homework can help you maintain focus and profits.
Fear is another emotion that has helped drive the markets from the very
beginning and will surely continue to do so in the future—predictably. Fear
always leads to panic selling but the market will always correct itself. The
best way to combat fear is to learn and understand how the emotions affect the
markets and then identify long term trends. These trends will help you plan the
best investment strategy so that you can maximize profits but you need to have
patience and look at what your charts are telling you.
Hope is something we all need but it can definitely cause some mistaken
investment decisions—especially when it comes to staying with a position too
long. Exit points exist for a reason so stick with them because the numbers
don't lie—period.
Unfortunately, we can sometimes have too much faith in our numbers. The short
term trend can look fantastic and cause us to invest before we have properly
researched all the facts—like the long term trends. If these two trends do not
agree with one another, it is probably a bad idea to invest in a position.
The market may be driven by emotions but it can also be predicted—because it has
ALWAYS been driven by the same four basic emotions. To keep your head in the
game, the profits up, and your analysis accurate—use these simple tips:
• Block out noise—short term factors can affect long term profitability if you
make rash investment decisions
• Look at what the charts are telling you—the charts are your lifeblood so never
ignore what they are saying because the market is always right and ego investing
will kill any great strategy
• Stick to investment strategy—this does not mean ignore the charts…simply
continue to back test and refine analysis of charts to improve a strategy where
the results have not been panning out as planned
You don't actually have to be a Zen Master to be successful on the Forex market.
However, you do need to understand that there is a psychology to investing and
that emotions are very powerful forces in any investment market—especially the
very fluid Forex. A good investment strategy will consistently produce profits
over the long term if properly followed so be sure to control your emotions, do
your homework, and stick with your plan—and the pieces will fall in place.
(article
3000)
|
