The Psychology of Trading

Dealing With Emotions

Many new traders look past the fact that trading can be very emotional and they underestimate the impact emotions can have on trading. When practicing on your demo account, try to trade and manage that demo account like it was your real account with your own money at stake. You should try to ensure your demo account is similar in size to that of your likely live account starting size. It is all too common for new traders to abuse a demo account or place massive position sizes only to find out that when they go to a live account they are unable to trade the same way.

Limiting risk on each trade is also highly important. Andrew Mitchem, of TheForexTradingCoach.com, often advises his clients not to trade with more than 0.5% of their account at risk on any one trade. This ensures that you know the worst possible scenario with each trade before you place it. It also allows you have multiple positions open at any time if required.

Knowing Yourself

Trading styles reflect the traders personality, with each trader having a personal approach. Traders will have different chart times, some opting for 5 minute charts, others for daily charts. You should establish what kind of trader you are and use that as a base to your strategy. Whichever your trading style, trading with a low risk per trade and a good reward: risk on each trade will ensure your emotions do not dictate your trading.

You should strategically place your stop loss and your profit target for a reason and trust that reason. Many traders will unfortunately cut short a winning position or they will move their stop loss even further away in the hope that a losing trade will turn back into their favour. As a trader, it is important to realise that losing trades are a part of trading but good money management will ensure that your emotions don't run away with your trading common sense.

Finally if you learn a successful trading system ensure that you stick with it and give it time to work. Many new traders, after taking a few loses, will then be on the lookout for the next greatest trading system on sale or they will start changing the rules of their current strategy to suit the current market conditions. Engaging in impatient trading is a very dangerous tactic that can damage your overall long term success as a trader.

For details regarding a successful low risk style of trading please visit The Forex Trading Coach.