After glimpse in technical and fundamental analysis let us have a brief look on the mindset of trader. Unfortunately, most of traders don’t spend enough time on this and most of times trading psychology tend to be overlooked. However, the actuality of things is that, most of decision made by trader are not guided by logic or rationality. This might surprise you and create a weird conundrum in your thinking. Since trading involves money it’s always tied to deep emotional entanglement during trading, the feeling of fear and hope are what will dictate traders decision rather than logic or rationality. A trader might learn particular strategy, back-test the strategy, forward-test the strategy with demo account and yet fail to implement the same profitable strategy when real money is positioned during trading. I will be as brief as possible to explain a tip of ice-berg for this kind of problem.
Traders tend to be hopeful in moments they supposed to be fearful
After learning and mastering particular strategy traders put their money in the market and expect to make money, but tragedy always arise when they are in loss regardless of all things being according to their plan. The frustration of losing money kicks in and trader bet more and more, by moving stop loss further or remove it and consequently they end up loosing all the money in their account. Under this situation trader would suppose to act rationally and get out of market as soon as possible after observing some loss but they always stay.
Traders tend to be fearful in moments they supposed to be hopeful
On this side of coin when trader realize they have started to make money and market is moving in their directions they immediately leave the market too early, fearing market can turn around and take what they earned before. In other words traders get afraid of losing the money they didn’t know they might have at first place and consequently leave more money in the market after running from the trading position. If you combine these two factors, you will find most of traders end up loosing more and earning very little.
Each individual loss is a painful experience and a win is a happy ending
Unlike other businesses, profit and loss per single action isn’t a sure thing in forex trading, forex market is entirely probabilistic, with that notion in mind it’s almost futile to assume a single event can determine the end results. For results to make sense trader needs to have sufficient sample size of about 25 or more attempts to conclude if the strategy has actually resulted to loss or profit. Regardless of knowing this, it’s very challenging to implement this knowledge in real trading when your money is on stake.
With these puzzles and more, trading education alone can not guarantee success in trading. What matters most is the willing to practice and persevere until the desired results attained. This challenging aspect of trading can also be conquered if trader will understand what s/he is up to at the beginning of his/her journey.
Afromist 