Description: How having the right trading mindset can make the difference between success and failure as a forex trader.
Forex trading has increased considerably in popularity recently thanks to the ease in which a personal trader can open up a forex trading account, the low capital required to do so and the high leverage often offered. Nevertheless, those new to forex trading will really benefit from studying the forex market in depth, becoming familiar with the risks and developing a sound forex trading plan before jumping in with both feet.
Furthermore, studies show that one of the most important determinants of success in forex trading involves the mindset of the trader. Therefore, cultivating the optimal trading mindset for long-term profitability is a key element in developing your skills as a forex trader.
The Importance of Money Management
Because of the volatility often seen in the forex market, a trader without a sound money management component to their trading plan could be likened to a skydiver without a parachute. In the event of a string of losing trades, the trader's account balance will drop much like the ill-fated skydiver without the benefit of a parachute to break the fall.
A large percentage of people that begin trading in the forex market fail mainly because of lack of discipline and poor money management. Without knowing how to deal with losing trades, many novice traders start "chasing money out the door" by committing a range of typical money management mistakes. Eventually they can end up losing a lot of money, perhaps even their whole trading account.
Watch Trading Risks Carefully
Interestingly, having a good trading plan only comprises one part of the overall trading game and optimal trading mindset. Another key element involves knowing what to do when the going gets tough. This aspect of trading will eventually distinguish a successful trader from the other high percentage of unsuccessful forex market participants.
Generally, forex traders will risk between 1% and 5% of their trading account's value on any given trade. Also, by always risking the same percentage, the trader's trade size will tend to grow along with the equity in their account.
In order to effectively trade with stops, the trader would do well to examine technical indicators and other trading signals and to place stop-loss orders accordingly, thereby maintaining a more objective mindset when trading.
Managing Your Trades Wisely
Furthermore, since trading inevitably involves making both profitable and unprofitable trades, knowing how to manage the unprofitable trades suitably tends to matter more. When trading profitably, the money tends to take care of itself, but when a trader encounters a series of losing trades, their mindset needs to include having an objective exit strategy. Also, knowing when not to trade could easily save their account from ruin.
Basically, good money management is not only essential for forex traders to learn and practice in order to develop a successful forex trading mindset, but it can benefit just about any business endeavor. In fact, even people that do not trade at all can often profit considerably from learning how to manage their money better.