Winning Forex Trading Psychology

Successful Forex traders know how to master Forex trading psychology. Your trading mindset is just as important as your technical ability.

“Typically I was putting around £1,500 on each trade. I’d win one, then lose one – win one, then lose one. I was on an emotional rollercoaster. It just couldn’t last.” And it didn’t.

This is a classic recipe for a massive heart attack – which he had. Thank heavens he survived to get his trading and (far more importantly) his life back on track.

I’d agree he’s an extreme example. But let’s be honest – we’ve all been there.

That wonderful feeling when you win. Then the sick, dreadful feeling next time when price burns through your stop-loss with contemptuous ease and you lose. As Kris Kristofferson once said, ‘Was the going up worth the coming down?’

And you thought Forex was easy?

And you thought Forex was easy? They all said it was easy. A few videos, an ebook or two, some tips from experts.

Can I share a ‘dirty little secret’ with you. Forex isn’t easy. It never was easy. And it never will be easy. If it were easy, everyone would be a winner – and they’re not!

If it’s so easy, why is there such a high (80%??) failure rate? Answer me this.

Still reading? Good. It shows you’re motivated. And only motivated people win – at anything. Doesn’t matter what it is. The truly motivated win every single time. You know the old saying, “Winners never quit. Quitters never win.” Well it’s true.

Forex trading is about mindset

Nearly everybody starts Forex trading from a purely technical perspective. Then they get some hard lessons. Slowly they begin to realise that Forex trading – in fact any kind of trading – is also about mindset.

Yes you can and should constantly refine your technical systems. But if you don’t address your mind game, it’s pretty likely that you won’t be one of the winning 20%.

Why is Forex trading so emotional? Because it’s brutally transparent! With most businesses you can bumble by for a while even if you don’t really know what you’re doing. If (when?) your business collapses, you can blame it on the economic situation or the government or something else.

But with Forex, you pretty quickly know the result – one way or the other. Either you were right or you were wrong. There’s no middle ground. When you’re wrong, it can be devastating to your emotional state.

Even if you think the market was ‘wrong’, it matters not one jot. Even if it behaves totally irrationally, it is never wrong. It cannot be wrong. And it takes no prisoners!

The frustrations of Forex trading

Even if you’re getting things right on a general basis, Forex trading can still be extremely frustrating. For instance:

• You can miss out on winning trades. It’s claimed that the saddest words in the English language are, “If only…” You can torment yourself with, “If only…”

• You can be stopped out by a point or two. Then the trade streaks off to your target like a heat-seeking missile.

• You can get what I term a ‘runaway’. Price comes tantalisingly close to your entry point – but it doesn’t quite reach it. Then it streaks off. Another heat-seeking missile.

• You can close a winning trade only to discover that if you’d only let it run just a little bit longer you could have made far more money.

And frustration is an emotion – a very powerful one indeed. Yet if you let frustration dominate your behaviour, then you’re doomed. Sure, you might win for a time. But in the end you’ll lose, big-time.

So what the heck do we do about emotions?

The classic advice, which you’ll see all over the place is to remove your emotions from trading. But this ignores the inconvenient fact that we’re emotional creatures.

Removing your emotions, ‘being disciplined’ sounds simple. But I’ll tell you something – it’s not easy. And haven’t we been here before with that old, “Forex is easy…” hype? Do you really want more of the same?

Your emotional account is more important than your financial account

There are two accounts – the financial account and the emotional account. Your emotional account is more important than your financial account. And yes, I have got that the right way round.

If your financial account was cleaned out yet you managed to find a formula for success (technical and psychological) you could get more money and come back in the game. But if your emotional account is blown, then that’s it. Game over.

I’m told there are people who can analyse a chart beautifully, know exactly where to enter and exit. But they can’t take a trade. (Or they can’t take a trade with very much money on it.) Their bad experiences have destroyed their confidence. Technically they could be superb traders. But psychologically they just can’t hack it. How tragic is that? Knowing you could be rich, if only you had a winning mindset. But you haven’t.

I was a Chartered Psychologist

Learning to manage your emotions and your behaviour is the domain of psychology. Now people come out with all kinds of ‘pop psychology’ about Forex trading. But I was a proper psychologist – a Chartered Psychologist and member of the British Psychological Society.

Did being a psychologist help me with my Forex trading? Not directly. It still took me years to develop a winning technical system and a winning mindset. Having been a psychologist did help me though when it came to analysing what a winning mindset in Forex is all about.

First of all, let’s get one thing absolutely clear: Forex is hard! I’ve turned companies around and saved thousands of jobs. I’ve free soloed routes harder than 90% of rock climbers will never dare to contemplate even with a rope. And guess what? Forex trading is by far the hardest thing I’ve ever done.

If you want to be consistently successful, you need to take things seriously

So if you want to be consistently successful, then you need to take things seriously. People take unpaid time from their jobs, spend huge amounts of money and work like dogs for an MBA. Why? Because they expect to advance significantly in their careers and make substantially more amounts of money. People take MBAs very seriously indeed.

So why wouldn’t you take Forex trading just as seriously? If (when?) you get it right, you stand to make far more money than most MBAs. In addition you’ll have said goodbye to the politics and drudgery of wage slavery.

Calculated risk

I’ve rock climbed at a high standard for decades. Rock climbing is about calculated risk. And Forex trading is also about calculated risk. It should never be about blind risk (what Mario Puzo, bestselling author of The Godfather, termed degenerate gambling). When I hear of people taking trades on their mobiles while they’re doing other things as well, I shudder.

To become a professional Forex trader (even if you’re doing it part-time, at home) you must adopt the mentality of a calculated risk taker. Like most worthwhile things in life, it can be a journey. There’s only so much I can cover in this blog but at least it’s a start.

An individual trade means nothing

An individual trade means nothing. You can be the worst trader in the world and still have a winning trade. Conversely you can be the best trader in history and still have a losing trade. If fact if you trade at all you will have losing trades. It’s an inevitability.

Trading success is not about one trade versus another. It’s about the success of a batch. A batch should be 10 trades taken following the same trading method, with the same amount of money on each trade.

Initially your batches should be on Demo (i.e. practice) accounts. You should not put real money on trades until several consecutive batches are successful. Your success rate should be at least 70%.

People go on and on about discipline in trading. But the most fundamental discipline is to trade in batches!

The outcome becomes far less emotional

Once you adopt a batch mentality, the outcome of an individual trade becomes far less important – and far less emotional. An individual trade doesn’t matter any longer. Only the batch matters.

Every trade should be logged as part of a batch. When did you take the trade? What were the currency pairs? Why did you take the trade (i.e what was the technical setup?) What was the result of the trade: did you win or did you lose? (Tip. Why you took the trade is the most fundamental question to ask.)

If you’re trading for money, then you should be following very strict money management rules: no more than 2% of your trading capital on a trade. No more than 5% of your trading capital at risk in the market at any time.

Batch trading begins to instill discipline in you. Sure, there’s a lot more that you can – and should – do regarding discipline. But crucially, you’ve laid the foundation.

No one trade can make you – and no one trade can break you

When you trade in batches, risking no more than 2% of your trading capital, no one trade can make you – but no one trade can break you. Trading become far more a statistical process. The mere act of following a statistical process will reduce your anxiety. The roller coaster of emotions won’t have such high peaks and such low troughs.

Now there’s a whole lot more to Forex trading psychology than this. But at least we’ve made a start – which is always the most important thing.

Batch trading is masterful in its simplicity. And it works! So try it out. Batches of 10 with exactly the same method. No more than 2% of your capital on each trade. Every trade and batch reviewed to see how successful you really are.

The brutal truth about trading – not for the faint-hearted!

While you’re doing this, learn more about developing a winning mindset. Read my Ebook.

It tells what happened when a psychologist became a Forex trader and spent a decade in the trenches. I warn you – it’s not for the faint-hearted!

But if you want to know the brutal truth about trading, I strongly suggest you give it your undivided attention. It’s highly informative. It’s scathingly honest. It can save you years of frustration and many thousands of pounds. The hard-won wisdom is gold dust.

So take the next step on your journey to trading success and financial freedom

Grab your FREE copy of the Ebook: ‘My Forex Struggle – What I Finally Learned’