Many traders with desire are constantly trying to figure out the magic words that would make them successful in Forex trading. The desire for success is ancient in a human being, as nature seemingly respects more greater ones. Scientifically, there is a constant of complexity attached to any activity in the “real world”.
As for the world of markets where a human being trades and invests, the huge part is what we do with ourselves. First thing to know is that things appear to us differently than they do to others. That means that what had proved well for somebody else doesn’t have to do the same for us.
We are naturally driven to always attempt doing things to improve the result of our effort. What is wrong in Forex trading is to copy somebody else’s mental strategies. A successful forex trader will always be the one who focuses on his own mental strength.
The essential rule for trading is what many find the hardest to follow, and that is focusing on your own strategies. However, as hard it might be, as good it is. Long-term profiting hides behind developing, patience and focusing on one’s own strategy. It is strange that human brain goes against the way successful trader does. Of course, one thinks he is following the steps of a successful trader, but what actually does is mimicking one’s steps on totally different terrain. Because we are not following path, we have our own, so we should adjust our steps to the path we go on.
Complexity is a part of living in this world and in turn, those who follow the complex world the best are being rewarded with the most complex set of prizes.
However, to become capable of trading in the Forex market, one needs to be freed of the idea that grace is something related to the Forex market. Only then, when we are not ashamed of taking “cowardly” steps, as the means of our defense, we can see some success.
Many rising traders believe that it is better to go along somebody “better” and “proven”, so they invest in mutual funds, just for the sake of how it looks good when the successful ones do it.

But, what is not often considered is that many mutual funds are operated in a way that wont make fast money to an investor. It rather allows only long positions, and are designed to be mostly 100% invested for the whole time. Thus, they are fully dependent on bullish stock market conditions, designed to boost profit for the investors.
Such funds are many times bounded by rules which are not in favor of the investors. Fund managers rather get paid even when money is lost, just for the reason that losses turn to be less than the limits that measure their performance. Whatever the case might be, the important thing to know is that we should not blindly invest our money to somebody who appears successful when we look at them, because, that their success might mean our loss.
Before the outbreak of the technology, market prices were written on chalkboards and sticky notes (made from paper, with glue that would make the paper stick to a surface). Anyway, market prices are the result of numerous decisions of trading. Every “tick” in the price is the affected by simultaneous trading decisions at one point in time. That was a good opportunity to some type of traders who could understand the goings of the market and move along the trends with profit.
Modern technology has equipped us with tools for better monitoring the stream of crowd philosophy, and has boosted the growth of many different methods to analyze the market.
The numerical data that traders use to decide where to turn in the market can be presented on a 2D chart, on a candlestick chart that represents the information about the price.
Tools for helping us improve analysis are different technical indicators. They are based on a certain calculation comprised of price data from real time history. Actually, there are a limitless number of possibilities that indicators can produce.
Seemingly, experienced traders prefer leaning on their cool charts, lines and curves. One might think that more indicators they have and understand will bring more money. But money and success were here before the computers, so again, rethink about the true power source is not a computerized indicator, but rather something from the inside of a human being.

To put it simply, the “new indicators” are not indicating anything new. It is more probably just a new and another way of showing one and the same thing that was present thirty or forty years ago. And the one who could feel it and understand it, doesn’t really depend on the looks of their charts. It is showing the historical path of the prices of high, low, open and close.
The thing that charts show is a reproduction of crowd psychology, which helps us evaluate trends and predict the future market trends. However, the complex network of indicators might confuse traders, and it leads them to think that indicator is leading the market, forgetting that stream of crowd psychology is actually driving the market. Indicators just indicate where the real thing has been, and based on that you can guess where the real thing will go.
Regardless of how sophisticated an indicator may appear, the market does not follow its lines, rather, indicators’ lines are going one step behind the market. The same way, you are the part of what makes indicator point this or that. Your action is prior to the indicator’s action.
Having this in mind, let’s not start assuming that this story is about ignoring the technology. No, rather technology should be encouraged, but pointing all the things above meant to be just a call for being cautious.
Of course, indicators help us plan and build strategy. However, they can’t predict what will happen to the market. And this is why defense has to be set. Defense is something that doesn’t seem popular, but every successful trader that seems leisured and calm is only giving that appearance because of their defense system working properly. Planning for losses, having an escape plan is having a defense set.
To a novice trader, trying to break through complex systems of analysis might seem to be a way to success. One might think that if something is hard to understand, it is good.
Accordingly, those people like having their charts colorful and scribbled as if something important is going on and they can understand it. But really, there is no need for losing your focus on resolving complex set of lines, since you can achieve the very same success with one or two indicators in reality, or sometimes without any on your chart.
Actually, being pure at heart and clear-minded is what brings success in forex trading. The important thing is to stay focused, and not let too many different opinions to blur your judgment of the market.
A mindset of a successful broker is not concerned with predicting the future, and is not excessively affected by past market directions. A successful broker puts focus on the present, that is, what the market is at the moment, and responds with a good idea for trading, backed up with escape plan and having defense set.
Importantly, the new technology did not raise the percentage of successful brokers. History shows that mindset and psychological tendencies have not changed. Things around us did change, became more fancy and appealing, but we don’t change psychologically, and statistics show, if you don’t believe anything else, that it is mindset that wins. Regardless of the technology traders use to predict the market, there are still people losing, and probably among losers, you will find many of those described here as the ones who lose.
We, therefore, must make effort to overcome our habits in trading, or join the majority that doesn’t.

You will find in many articles, printed or digitalized, that the most (very very )important thing of success in trading is having the right way of thinking – nice risk management strategy. Winning traders and losing traders are being recognized by their approach and not by trading strategy.
Let see why is that? First, the majority of traders have all “proven” strategies, actually, in the time-lapse of our lives, there have been numerous “successful” strategies, so if it is the strategy that wins, how come those who copy can’t repeat success? The answer lies in psychological mindset.
As most traders make effort in creating a good winning strategy, they alongside lose money. Few of them focus on having the right approach to trading.

One attribute of the winning traders is their ease to trade and being natural. The money attaches to them. On the other hand, losing traders see trading as something stressful, as a nightmare full of worry, fear, and ultimately, losses. Success to them always appears on the other side of a huge wall, and they keep spending time, day after day, watching their money go away.

So, what’s the point, what’s the difference? Intelligence isn’t because you will find many phd’s in the losing crowd, professional traders. Trading systems is not what it is, as said, if it were, copying it would make profit for all of us.

It is mindset and trusting in yourself. The winning traders always try to remain confident and calm (but small risk helps them to do a lot), even when their backup (losing) plan gets activated. For comparison, when a losing trader enters the red, he/she starts panicking and, further describing is stating the obvious. Losing focus and letting go any remaining sensible move to attempt, even forgetting pulling a possible ace up the sleeve.

It takes time to gain experience in being calm and staying that way. Not many people are natural born traders, so if you know that you are not, you won’t become one. But you can become a successful one by training to become a calm person.

For example, elders teach us as kids that avoiding risky situations is good. Winning traders are trained to take risk. It isn’t natural in them, they probably were teenagers who stood by the “don’t take risk”. But the thing is that loosing traders are still bounded by that one about taking risk.

When winning traders recognize a price in a place they want it to be at, they act according their strategies, without hesitation they jump the horse and take a ride.

On the other hand, loosing traders a lot of times in their life feel fear, reconsider time and again if that is what undergoes their “winning” strategy and then act. Obviously, because they are thinking under fear, their decision is easily the wrong one.
It is important to have a backup plan and go along without fear. You have to know that anything can happen, so nothing can get you as a surprise. When you know you won’t be stunned, you won’t have to worry about it. Just move along – with a clear mind.

Escaping from a trade is easier for a winning trader. That’s the part that makes them not “losing” one. When a wining trader sees that the trade chosen is going to be lost, the trader exits it before the loss empty’s the pockets.
Losing traders stay married to their trades and many times go along with it to the bottom. They go down with a lot of pride (and no money).

Winning traders know that risk is involved, and it means losing, so that subject is not something that bothers winning traders.

Once you achieve that you’ll realize that trading is way easier and you will see how good trading opens its world for you.

Successful traders have overcome fear, the big obstacle for successful trading. Fear makes a trader stunned and panicking. Fear fogs vision, and instead of focusing on trading a trader focuses of overcoming the fear – in the middle of the trade. In that case, the only success could be overcoming the fear – forget about the trade, because nobody’s dealing with it.

First step to becoming a winning trader is to learn controlling emotions. We must approach trading fearlessly to keep the discipline and awareness of the actual ongoings on the market. That means we need to see clearly at all times and we must not allow our focus to be lost. We mustn’t think about what if the market goes here and there; we must follow what market is doing now. We must focus on that.

Most traders keep eye on their strategies instead of their attitudes. Strategies are more easily to be adopted, if you have the proper trading character. If we adopt a strategy, and then go for learning to be patient and cool, can confuse us further, because a cold headed trader might want to use different strategy than a hot-head we used to be will.

There is no way to know for what the market is going to do at any given time. Therefore, be reminded that accepting the simple fact that any trade comes along with taking a risk, and that any given trade may end up being proven wrong.

The difference in attitude and mindset is what empowers winning traders to rise above the crowd and be consistent in winning. They operate rationally fully aware of what they can do. Fear doesn’t bother them and it doesn’t interfere in their trading.

But, to become a winning trader who knows no fear is something that comes with training. It is not something that comes naturally to us. It also has to be maintained.

Having mindset like that, trading becomes less-stressful and in turn a profitable job, such that it almost seems like money is just falling into our laps every day.

Trading Psychology – Dealing with Loss Aversion
One important aspect of trading psychology is dealing with losses. It is not more important than proper dealing with winnings, as winnings might lead to euphoria and can produce or upgrade greed, but for this article, the focus is on dealing with losses; or more closely described – mastering loss aversion.
Mastering loss aversion means getting into a state where a trader can relieve of the fear of loss. Sometimes, a trader can’t cope with thinking about losing, and losing is really a part of trading, so no confusion should arise there that a successful trader never loses.
The major problem with loss aversion happens when a trader decides to get out of the trade after a certain amount lost, but just after that happens, the trader decides to try to go more with the same trade and thus just multiply the loss. The trader does it because he or she believes that they can avoid losing. So instead of getting out, the trade continues in hope to get back to the winning side.
Loss aversion makes traders leave their scheduled plan. For example, a trader’s strategy tells him or her that in the next month, winnings are going to happen in sixty percent of trade. But, in a trade the trader starts thinking that a particular step can be skipped (which is in the particular example a losing – but calculated – step), which can bring an additional percentage. And when the entire losing trade ends with more account cleared than originally calculated, that means that the 40 percent losses are still 40 per cent of total losses, but the overall amount lost is now greater. Obviously, in this example, one such mistake doesn’t have to mean total loss, but should it be repeated, it can turn a 60 percent into less than 50. And with leverage included, such a loss can wipe out entire account.
This problem amounts especially if this mistake was due to psychological weakness; then it can happen again, and that is a serious problem.

Causes of loss aversion
Fear of loss occupies a trader more than euphoria of gaining does. An example to this is the happiness for finding a “Benjamin” on the street, and the fury after realizing that you lost one from your wallet. Or think about losing something, or never having it at the first place. It is actually a scientific fact that our brain gives more space for losses, than it does for wins.
Studies showed that people prefer gambling for a 75% chance to lose $100, and 25% chance to keep it all, rather than losing 75 sure, and keeping sure $25. In trading, it is gambling your stop loss. In fact, the option to gamble in this example occurs only if there is an inevitable loss approaching.
But, if the trader calculates well, and takes into account a certain number of losses, well that’s what stop loss is for. There is no need to gamble to lose more. And since the stop-loss situation has been activated, that means that the trader had counted on it to happen, which also means that the situation the trader is in is the one that he or she doesn’t believe to turn for better. And the belief is based upon calculations and planning. So, why should anybody change mind now, in the middle of the loss? When the stop-loss activates, it means the things have gone downhill. And that is something that’s “been planned”.
The greater problem occurs when sometimes this way a trader gets back out of the loss and thinks that it is possible to trade this way. But fortunately, these things don’t happen often, because if those things happened, nobody would ever invent stop-losses. Going against strategy has been proven wrong anyway. It’s statistics, not an assumption.

Managing loss aversion
When a trader goes into loss aversion, it is hard to get out of it, as it is from any psychological trap. But, regardless of avoiding fear, greed, panic or euphoria, nobody likes losing, and that’s what makes it harder. We’ve seen how it happens; let’s see now how to overcome it. Is it possible for somebody who can’t accept losses to somehow become a person who accepts losses as a part of job?
It is again all about leaving emotions behind, or aside. It is important to prepare and arm with knowledge. That implies knowing that for trading successfully, a plan is needed. And to have a plan, knowledge is needed. Again – to trade successfully – a plan is needed.
When a trader has a plan it doesn’t mean that loss aversion will simply fade. As in the example, loss aversion occurs even when things go by plan. Definitely, a loss has to be a part of a plan, and no strategy can be made that disregards losses. So the question is how to avoid falling into loss aversion even when you have the plan? If a trader doesn’t have a plan, that isn’t really a serious trader, and there are more important issues to overcome first.
It is important to truly believe in your plan. That is the key to overcome emotions that might rise during the trade. When you are 100% sure that your plan is going to work, only then you can say “no” to your emotional suggestions that imply you changing your plan in the midst of the way. So, it is essential to believe in your plan 100%. Now, it is possible that you made certain mistakes and your plan didn’t work out. Then the key is to revise your steps and analyze how the plan was not the best one.
This means, in order to manage loss aversion, make sure to analyze your steps that brought you to lose your 100% well planed trade.
It might sound harsh to be sure in your plan, and it might sound as I you should practice before you enter the trade. Well, it does mean that. A trader has to practice first. It is possible to practice with a demo account, and by practicing the platform, the market, the ongoings; you can practice your patience as well. Make a plan, stick to it and carry it through. Surely, on a demo account, you won’t feel need to “save” your money with a wrong move. When you build up your power of will, it might turn out helpful when you turn to trading with real money. Just remember that a stop loss is something you planned and that the planning took place before the trade, when you were not under the pressure. When the trade is happening, you are under the pressure and your thinking isn’t clear. Keep that in mind that when you planned, you were smarter than you are when the trade is happening.
You will see this to be true after the trade, anyway.
Planning well and following through. So, when executing a trade, prepare stop losses, prepare targets and just sit back and practice for a year, for months. If your strategy is good, you will see that managing loss aversion this way helps to go through your trade to the end. If the strategy wasn’t good from the beginning, you will be able to detect the mistakes. But if you interfere with your trades, you won’t be able to detect the rights and wrongs.
Not falling to emotions and seeing a plan through is what creates great traders, great generals, great leaders…
Letting the price hit the stop or target is something you will have to get used to before you are prepared to interfere with the trade. As said before, months of time before being able to interfere – after analyzing what happens, then you can move things a bit yourself, but in this case, not because of fear, but because of caution and knowledge.
Still, in order to avoid falling into this psychological trap, even when you think you know your way, don’t forget to set a stop and a target.

Conclusion
Loss aversion takes place when the trader is not willing to take a loss. When this happens, he or she interferes with the plan and the outcome usually ends not in their favor. That is because it never went there. It is the fact that humans find it more difficult to cope with losing, than they are more euphoric with winnings. It is important to practice the moves that are related to psychological thinking and “planning”. It is not good to interfere with plans. It not just destroys something we thought is good, but we also lose the opportunity to see if we were right, and we can’t use that particular trade to be an example for future trades.
The best way to practice this is to trade a strategy for a long time and let the price hit the targets and stops, without interfering with it (if possible on a demo account – that way we can literally sit on our hands and watch the trade go by in accordance with our plan) and learn to handle the emotions, assure that risk is controlled, targets set and plan in its motion.

This is a short overview of trading psychology and the way it affects the traders’ profits or losses.
Good academics are not often as successful as traders. Why the Forex market doesn’t see many successful traders of those who were very successful during their education? Just one example of this state is mentioning a couple of Nobel Prize winners who are heads of LTCM, who gave so much to the theory of economics with their long-lasting dedicated work to economics, Robert C. Merton and Myron Scholes, and who could not achieve much by trading at the Forex.
In this particular case, it wasn’t the lack of experience that caused LTCM to have high losses. It was the lack of carefulness, and presence too much self-confidence, as well as not paying much attention to controlling the risk. The reasons to have these issues while doing a job with too much risk are easily linked with emotional preparation. This particular article is going to present the four major psychological problems a Forex trader can encounter. We will see if the psychological problems can do more damage than false analytics and or lack of information, and what is the difference when recuperating from the damage resulted from psychological problems and analytical mistakes.
The psychological problems being discussed here are of the kind that is permanent threat for a trader, not something that can be overwhelmed once and for all. These problems can wrap traders and hold to them firmly, it is not just lack of focus or a headache that distracts you from straight thinking for several days.

GREED
It has been discussed many times at many places; some even say a small dose of greed is good for a trader. And that might just be the case. But let’s see what kind of greed is that bad enough so that it can be listed as a psychological issue number one for a trader. This problem is a huge one first of all because if greed is our companion, we will never see the end of our path, not even a break. Greed is something that will make us pace fast by the break time. If you ran a marathon, greed would not let you slow down in order to take a bottle of fresh juice from the table by the running track, even though you are about to stumble dry and thirsty.
Of course, the goal of every trader is money. That is not the issue, and the more money we get, that means the more successful we are. And the marathon runner has to have something to push him forward. But that something is actually stopping for taking a sip of water. Those who say a little bit of greed is necessary are not wrong, but it has to be put in the frame of the trader’s goal. The goal is being set by knowing your own capabilities, by knowing how much can be risked, when it is possible to risk with rising leverage, and just at the end, it is important to leave assumptions behind the trading plan and replace it with calculations. We only might need the greed to push us “into” the race, but after we do our math (get to know the map of the track), we don’t need greed to lead us forward.

FEAR
Speaking of fear as a psychological obstacle for progressing into the world of successful Forex trading, let’s not forget that as in everyday life, it is something that makes us think twice before everything we do, but that further prevents us doing it. Reason as well makes us think twice, but when the thing to do is going to be in our favour, reason tells us to continue doing it, fear doesn’t.
Fear has the opposite effect than the greed. It doesn’t motivate us to trade without control, it rather slows us down and we don’t see even the “junk time” plays. Fear makes us think that whatever we do is not a good plan, again disregarding our good planning and thorough analysis. When trading with fear, the wins we get will go unnoticed, because fearful traders can’t see the reasons for wins. It is the same with losses. If a fearful trader loses an investment, he or she will think it is because bad strategy and fully cross that method, even if the reason for a loss was a mistaken assumption. The result of that sort of behaviour will eventually lead to crossing out every strategy that sometimes “prove” bad.
Cautious and frighten trader are not the same thing. Conservatism is good, because a conservative trader, even though he doubts everything, he is still willing to follow the rational lead. Regardless of the state of mind, he does what his statistics-based reason tells him. In comparison, fearful trader doesn’t believe even in his own calculations. Fear brings a trader into a position where he or she doesn’t know what to do anymore, but has to do something, and out of fear everything seems wrong, so the investments are usually just blind shots, because everything is the same to those kinds of traders.
In order to overcome fear, we must know and be assured that good strategy is what brings success, and we need to focus on developing a good strategy. We must truly understand that there is not any more luck in trading than there is in any other business. Before we achieve that, we might fall into greed or fear. So, we must make sure that we control our choices. We must have plan and a firm strategy that we use to get us there. And if we don’t make it “there”, we have to logically analyse why. It is, therefore, good to prepare and patiently study the market and get to know every aspect of it. That is the way to make sure that we understand that fear makes no favourable difference. Something we can learn from the example of psychological problems in trading is to mention that we must make sure to not overload leverage, especially if we know that fear plays a role in our trading decisions. So if we clear our account, we don’t lose more than we can really afford.

EUPHORIA
This is an issue that many traders encounter and it is probably the worst thing that can happen when in a good run. In the euphoric state, traders see no other outcomes but wins. Not like greed where we desire wins, euphoria makes us truly believe that we can’t really lose. This obviously happens after a couple of wins that the trader can’t explain. He or she then believes that it is a stroke of luck, but as mentioned in two of the previous parts, the only reason for success is good planning and good preparation with calculated investment. Investing is not throwing dices. Most successful traders don’t really go into euphoria, because they know exactly the chances to have their investments returned, so every outcome is perfectly reasonable. Even if the trader’s assumption was wrong, the outcome becomes reasonable. It goes for the successful investment as well. Therefore, a successful trader knows that there is no reason to “celebrate” in a loose way or to let his or her chances to pure luck believing euphorically that the success wasn’t the result of hard work only.
Euphoria gets trader into a state where he or she can’t think straight anymore, and even the good aspects of their trading becomes lost, so every other investment might – but won’t – be a successful one. It then only lets time to eat the account.
The way to avoid falling into euphoria is to know that success only and only comes after hard work, and not by luck. A trader has to know greed won’t make account grow, but regular motivation will; fear won’t protect investment, but caution will; and euphoria is not something to build the strategy on.

PANIC
Opposite of the previous psychological problem is panic. Usually occurs after a series of losses that a trader can’t follow and analyse. As it is important to analyse the market for investing, it is also important to analyse moves and trades made in order to follow their outcome. So when a trader gets hit by a series of bad trades, and can’t realise the reason for any of those trades, or can’t make a connection, he or she then can panic and believe that the reason is lack of luck.
Again, it is not true that a lucky series can bring any success, but a series of strategically made moves can. There is actually no place for panic with real serious traders, but it can be seen with majority of average traders that they can fall into panic. Let’s remind that if one trader is having a bad series with large sums on a long currency trade, there is somebody on another end who is maybe having a series of large profits on a short trade on the very same pair. But for some reason, this very logical fact doesn’t seem to help those who panic about their losses, especially those who panic after a series of losses.
One big problem with panicking traders is that they mistakenly cross out streaks. And streaks can be good. But probably the reason these people are panicking is because they don’t plan and they can’t analyse their losses. So they simply quit a trade, escape, and irrationally change and switch their strategies.
A way to avoid huge blowouts by panicking is to avoid leverage. Actually, whenever a trader is unsure of outcome (which can only be if the trader is not prepared and the strategy was built by wrong factors), he or she should not raise leverage.

SUMMARY
The best way to overcome the problems with trading psychology is to make sure to know that the success comes with hard work. Emotions don’t play a favourable role in trading, so they should really be put aside. The will that made a trader do the first step should be enough. For knowing what trade to take, a trader doesn’t have to have a gut, but he or she has to have the knowledge and a reasonable explanation of why that particular trade was taken. It has to be clear that not every trade would end up in traders favour, but a trader has to be able to explain every move he or she makes. Not just in order to recognise mistakes in a possible loss, but in order to avoid falling into psychological traps such are greed, fear, euphoria or panic.
Leverage is a great way to multiply chances, but a trader has to keep in mind that leverage can also amplify the loss. So whenever for some reason a trader is not sure whether his or hers investment was made upon thorough analysis, it is important to leave leverage out and invest only affordable. Relying only in reason and using emotions only to be happy about something should not let a trader down. Losses and wins happen, but the trader should know why and why any particular loss occurred and how a particular win was achieved. As long as losses and wins are possible to be mathematically calculated, psychological problems shouldn’t occur. When the trader looses track, then things like euphoria, fear, panic or greed come into play.