Forex trading has, in the last few years, become a very popular mode of investment as it in some respects may be easier and possibly more profitable than stock markets due to the great volatility of the forex markets when compared to the sideward trending stock markets in the last few years. Most newbie traders think that it is a cat and mouse game where they have to guess right all the time. Of course Forex trading is all about making profits with the relative movements of currencies in a pair but emotions and feelings play a strong part in this kind of trading with a vast majority of transactions done at the spur of the moment. This is why the psychology of the trader is considered so important in Forex trading.
Forex trading is certainly not what it seems to be to an outsider. This is why the perception of an investor changes drastically after entering into a trade with his own real money. This is because, when a beginner tries his hands on a demo account, he/she is casual in his approach and it looks like it is very easy to make money. Contrast this to when his/her own money is a stake, the trader then becomes cautious and starts to think a lot if the transaction would be profitable or loss making. It is after the first live trade that the investor becomes fearful and indecisive as he/she does not know when to get out of the particular trade.
The psychology of Forex trading affects the decision making ability of the investor and their judgment. The two emotions that become dominant in such a scenario are greed and fear. Forex trading becomes disastrous in the case of most of the investors as their minds are not balanced in their approach towards greed and fear. To become a successful Forex investor, one must learn how to control one’s emotions and accept the fact that you will taste defeat every now and then. Even while profiting from a trade, you have to control your greed that tells you to stay in a trade until the currency pair climbs another 10 pips. When left unchecked, your greed will tell you to wait for another 10 pips and finally the direction of the currency pair may turn and you would be the loser in the end.
Shed your human emotions and look at the transactions as an outsider (i.e. try to from time to time detach yourself from your trading positions). Though it is easier said than done, this is one of the best ways to achieve success in Forex trading.