Forex Trading Psychology – What It’s Viral And How To Control It

By Steven Hatzakis Wednesday, December 27, 2017
Although knowledge is very important in trading, the lack of proper Forex trading psychology is actually the biggest cause of one’s failure.


In addition to having analytic skills and strategies, it is vital for traders in the Forex market to have the right mindset. This means that they must be able to handle and overcome stressful situations. Controlling your desires and feelings is the key to a trader’s success and is what we call Forex trading psychology.

Why Is Forex Trading Psychology Vital for Every Trader?

You might surprise that only approximately 5% of traders succeed in the Forex world. Based on such statistic, anyone would think that you must have it in you to become a good trader. But of course, nobody was born a good trader.

To debate this fact, two commodity traders – Richard Dennis and William Eckhardt - conducted an experiment called the Turtle Experiment in 1983. Eckhardt argued that ‘genes’ play the most critical role in becoming an exceptional trader, but Dennis was successful in proving that anyone can be a trader with appropriate education. Dennis’s recruits, the Turtles, had almost no experience but were overwhelmingly successful when they made over $100 million in 5 years with just $1 million invested and following a simple set of rules in trading.

Although knowledge or expertise is very important in trading, lacking those aspects is not the main cause of one’s failure. Instead, too much confidence, ego and a lax attitude are the primary factors that spell doom for traders.

The Top Four Psychological Demons Amongst Forex Traders

Anyone can make mistakes and learn from them, but the damage done by those mistakes in the trading world can be devastating. In order to understand and manage your emotions and psychology, you should be aware of the four Forex demons that may ruin your career.

After overcoming your inner demons, all you need is to have patience and knowledge in order to reach your goals in the Forex market.


Undoubtedly, the worst enemy to Forex traders, greed, is a demon with a poisonous tongue that is always inducing us to act in a rush and not let opportunities slip away through our fingers.

The vast majority of Forex traders is money-seeking individuals that use their financial success ambition to withstand great pressures in the Forex market. It is necessary and healthy for traders to have these drives to gain benefits, but they are impulses that can be troublesome in rational trades. Traders who simply add to a position when the market has only moved a little bit in their favor are greedy and never likely to succeed.

So, how can we avoid the misguided choices controlled by our greed? Ensuring a restraint and rational approach to trading is the first step in conquering greed. Planning a strategy and sticking to that strategy in trading is how you can cast your greed aside when your decisions are based on just reasons and analysis.

By depending on studies and experiences, we can stay calm when every market development is calculated and predicted instead of letting emotions, such as fear and uncertainty, take over. To succeed, we should listen to our greed demons and minimize its control rather than being arrogant and ignorant.


Conversely, fear prevents us from making decisions quickly and accurately instead of being hasty. Fear arises when traders suffer a loss greater than they expected, and thus, being incapable of handling it emotionally. Fear also makes us uncertain, indecisive because traders are usually unknowing of what’s going to come in the volatile Forex market.

Regardless of how much blood, sweat and tears we’ve put in our analysis and research in order to have the perfect strategy, fear can immediately make us cower by convincing us that we will fail or even lose everything in the end. Once fear has taken over our minds, it becomes difficult to make rational and reasonable decisions that might end up being profitable. Instead, we might make false assumptions that would ruin everything.

Also, note that being conservative and afraid are two different things. Being conservative is being skeptical of anything anyone says but still able to make rational decisions based on a study in a profitable situation. However, being afraid or fearful is not only being cynical of others but also yourself, your own judgment and analysis. The fearful traders don’t know what to risk, where to invest, which trade to take, and everything seems indifferent to them. Making unsure decisions when you’re in fear and doubting yourself is the same as suicide, eventually resulting in great losses.

In order to avoid the deleterious results of fear, we must hone ourselves to comprehend that there’s nothing accidental about success in the trading career. Be aware that we can always control our choices and have a thorough plan to which we abide by with an unyielding will, ignoring any illogical emotions inside. All of this is possible with a logical and patient approach to trading, which can only be acquired by practicing patience.


Most traders are mindful of the fact that winning in Forex trading is not a piece of cake, so being affected by self-confidence is something irrelevant to them. But for beginners without enough knowledge and experience, getting big profits from the first few trades may make them think that their strategy and analysis of the Forex market are flawless.

The first rule to have sound analysis is to be aware that no analysis is perfect. The potential profits of the next trade are independent from the previous one, so there is no point in getting over excited about gaining some profits.

The best method to avoid over-confidence is to remind ourselves that consecutive wins or losses of the previous trade will not define the result for the others. The success or failure is reliant on how well we can disregard our emotions to stick to our strategies consistently in any trade.


Hysteria is the opposite of self-confidence. In a hysterical situation, the trader is filled with negativity and only thinks of losses in the market. This is a peculiar disadvantageous way of perceiving in the Forex market since the loss of someone should be another person’s gain.

When a trader loses huge amounts on a currency trade, another trader is most likely making significant profits by trading on the same pair. This fact helps traders imagine how surreal it is to be unreasonably panicking in the Forex market. The cause of panic in traders is because of the unstable fluctuations of prices in this foreign exchange market, making them lose confidence over time.

Like fear, an agitated trader can make all kinds of mistakes. He becomes unable to analyze logically on the situation and gets led around by his own mind instead. Ultimately, losers or winners are decided based on the market, but for a panicky trader, he gets misleading expectations and unknowing of the profitability of a trade.


In conclusion, you must minimize the effects of emotions to deal with the problems linked to the human psychology in trading. To be able to do that, you must realize that success or failure is not based on luck, but on the logical results of our own decisions. Having a logical approach to trading by understanding the market trends, how it works and the changes in the macroeconomy.
Hopefully, you know understand about Forex trading psychology. Thank you!

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