View source for 3 Keys to Mastering your Trading Psychology

[[Trading psychology | Psychology]] has a lot more to do with success in the [[Forex | markets]] than most [[Trader_Types | traders]] will give credit.   Proper [[Trading psychology | trading psychology]] can be broken down into 3 key areas in which [[Trader_Types | traders]] may focus their [[Fundamental and Sentiment Trading Strategies | efforts]] on improvement.  These 3 Key of success is what we will focus on in this Wiki.

# Focus on One [[Fundamental and Sentiment Trading Strategies | Method]].
# Have a [[Having an Edge in your Trading | Trading plan]].
# Build a Winning [[Trading psychology | Psychology].


In this Wiki, we will look at each of these important areas in more depth.  Keep your mind open to possibilities.  Understanding these 3 keys is essential to your [[Developing your Trading Process | development]] as a [[Trader_Types | trader]] and is absolutely necessary for long-term [[Sentiment_Analysis#Profit_Taking | profitability]].  

Yes, some of this might sound a little cheesy like a motivational speech but being a cynical, miserable person who thinks the power of positive thinking is a bunch of garbage will definitely not improve your chances of success in the financial [[Forex | markets]].  However, being positive and proactive will improve your odds if you will only give it a chance.  You will find it hard to succeed without mastering each key so learn them well.


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='''3 Keys to Mastering you Traidng [[Trading psychology | Psychology]]'''=


=='''Focus on 1 [[Fundamental and Sentiment Trading Strategies | Method]]'''==

You can focus on any [[Fundamental and Sentiment Trading Strategies | method]] that you choose.  However, focusing on one [[Fundamental and Sentiment Trading Strategies | method]], especially for new [[Trader_Types | traders]], is a major key to setting yourself up for success.  This doesn’t mean that you are limited to [[trading]] one [[Fundamental_and_Sentiment_Trading_Strategies | strategy]] for the rest of your life.  Rather, the point is to master one [[Fundamental and Sentiment Trading Strategies | method]] first before adding more to your [[Having an Edge in your Trading | trading plan]].  

[[Fundamental_Analysis | Fundamentals]] and the [[Sentiment_Analysis | sentiment]] are the main [[Price Action Analysis | drivers]] behind the vast majority of [[Price_Action_Analysis | price movements]] in the [[Forex]] [[Forex | market]] and most other financial [[Forex | markets]] as well.  In [[Forex]], a [[Trader_Types | trader]] will give himself the best chance of success if he implements a [[Fundamental and Sentiment Trading Strategies | trading method]] based on [[Fundamental Analysis]] and [[Sentiment Analysis]].  

[[Technical Analysis]] is a very novice and [[Institutional_and_Retail_Traders | retail]] way to [[Trading | trade]] the [[Forex]] [[Forex | market]] if that is the only thing that a [[Trader_Types | trader]] is using to make [[Pre-Trade Considerations | trading decisions]].  If you ask big [[currency]] [[Trader_Types | traders]] at an [[Trading#Investing | investment]] bank or hedge fund what type of [[Technical Analysis]] [[Trading_Tools | tools]] they use to help them make [[Pre-Trade Considerations | trading decisions]] you will likely get a very confused look on their faces.  No [[Trader_Types | trader]] with billions of [[US_dollar | dollars]] to [[Trading#Investing | invest]] looks at a [[Trading_Tools#Charting_Software | chart]] covered with Bollinger Bands, Ichimoku, or other [[Technical_Analysis#Core_Concepts_of_Technical_Analysis | indicators]] to make [[Technical Trading Strategies| trade calls]].  Rather, they listen to what the [[Central banks]] are telling them.  

[[Technical Analysis]] has been made extremely popular because it speaks to [[Trader_Types | traders]] in absolutes.  If this [[Chart Patterns | pattern]] shows up then this is the result, if the [[Technical_Analysis#Moving_Averages | moving average crosses]] this then that will happen, etc.  It is a very ''"if this then that"'' way of looking at the [[Forex | market]].  This is in contrast to [[Fundamental_Analysis | fundamental]] and [[Sentiment_Analysis | sentiment analysis]] which are open to [[Essential Forex Trading Guide | interpretation]].  [[Institutional_and_Retail_Traders | Retail traders]] really like ''“for sure”'' outcomes but what they typically find out (or maybe they cling to the delusion) is that nothing in [[trading]] is as simple as buying a [[Chart Patterns | pattern]] over and over and making money. 

This is not to say that [[Technical Analysis]] is completely useless;  Quite the opposite actually.  The key is to use [[Technical Analysis]] as a [[Forex Market Hours | timing]] [[Trading Tools | tool]] to [[Risk_Management#Entries_and_Exits | enter]] and sometimes [[Risk_Management#Entries_and_Exits | exit trades]] in line with the overall [[Fundamental_Analysis | fundamental]] and [[Sentiment_Analysis | sentiment]] picture.  A mix of 80% [[Fundamental_Analysis | fundamentals]] and [[Sentiment_Analysis | sentiment]] combined with 20% [[Technical Analysis]] is a pretty good place to start.  

With [[Fundamental_Analysis | fundamentals]], the importance of any [[Economic_data_releases | economic indicators]] lies in what the [[Central_banks | Central Bank]] is currently focusing on.  Each [[Central_banks | Central Bank]] will only focus on one or two things at any given [[Forex Market Hours | time]] to [[Essential Forex Trading Guide | guide]] them on their [[Monetary_Policy_Tools | monetary policy]].  If, for example, the [[Central_banks | Central Bank]] is focusing on [[Economic_Cycles#Inflation_and_Deflation | inflation]] and [[Economic_data_releases#Gross_Domestic_Product | growth]] then [[Economic_data_releases#Industrial_and_Manufacturing_Production | production numbers]] will have little impact on the movement of the [[currency]] but [[Economic_data_releases#Gross_Domestic_Product | GDP]] and [[Economic_data_releases#Consumer_Price_Index_(CPI) | CPI]] will have the greatest impact on [[Price_Action_Analysis | price]].   

You don’t need to be an expert on the ins and outs of every single [[Technical_Analysis#Core_Concepts_of_Technical_Analysis | indicator]], all you need to know is what the main [[Technical_Analysis#Core_Concepts_of_Technical_Analysis | indicators]] are and which ones the [[Central_banks | Central Bank]] is focused on at that [[Forex Market Hours | time]] to make a [[Pre-Trade Considerations | decision]] on what [[Trading_Tools | tools]] they will use to enact [[Monetary_Policy_Tools | monetary policy]].  What is the [[Central_banks | Central Bank]] worried about or focusing on?  All [[Trader_Types | traders]] should follow the [[Central_banks | Central Banks]] lead; never fight them because the [[Trader_Types | trader]] will always lose!


=='''Have a [[Having an Edge in your Trading | Trading Plan]]'''==

Having a [[Having an Edge in your Trading | trading plan]] is an essential key to becoming a successful [[Trader_Types | trader]] in any financial [[Forex | market]].  Without a [[Having an Edge in your Trading | trading plan]], the [[Trader_Types | trader]] is flying blind and may fall victim to taking random [[Trading | trades]].  If a [[Trader_Types | trader]] does not take the [[Forex Market Hours | time]] to formulate a well-thought-out [[Having an Edge in your Trading | trading plan]] then it is almost certain that they will fail at the [[trading]] and [[Trading#Investing | investing]] game.  

Your [[Having an Edge in your Trading | trading plan]] is your [[Pre-Trade Considerations | objective approach]] to [[Risk_Management#Entries_and_Exits | entering]], [[Risk Management | managing]], and [[Risk_Management#Entries_and_Exits | exiting]] your [[Trading | trades]].  The [[Having an Edge in your Trading | plan's]] sole objective should be to take out the [[The Psychology of Money Management | emotions]] from your [[Pre-Trade Considerations | trading decisions]].  Use your [[Having an Edge in your Trading | plan]] and stick with it until it gives you [[Trading_Routine#Review_Phase | feedback]] that something needs to be adjusted.  

Your [[Having an Edge in your Trading | trading plan]] must have critical elements such as the [[Fundamental and Sentiment Trading Strategies | method]] you [[Trading | trade]], your [[Having_an_Edge_in_your_Trading | trading edge]], [[Risk_Management | trade management]], goals, [[Trading_Routine#Review_Phase | results tracking]], and how you will learn from your [[Trading | trades]] in order to take your [[trading]] to the next level of success.  You should also define what success is for you.  For most people success is the ability to create their living 100% from [[trading]] the [[Forex | markets]].  That’s a pretty good goal and a completely achievable one.  

Your [[Having an Edge in your Trading | plan]] should provide an objective measuring stick so that you can [[Risk Management | manage]] your trading business objectively and make changes to continuously improve your results.  [[Having an Edge in your Trading | Trading plan]] don’t have to be complex but they should be flexible enough to change after you gain [[Economic_data_releases | data]] from a large pool of trading results.  

Remember that a big part of success in any venture in life is to do something consistently over a long period of [[Forex Market Hours | time]].  This can be quantified by following a [[Having an Edge in your Trading | trading plan]] over a large number of [[Trading | trades]].   


=='''Build a Winning [[Trading psychology | Psychology]]'''==

There is a common misconception surrounding [[Trader_Types | traders]] who have become successful.  Many people think that these successful [[Trader_Types | traders]] have something special about them that they themselves do not.  While this can be true in some cases, 99% of the rest of the [[Forex Market Hours | time]] it’s absolutely false and misleading.  

Winning [[Trader_Types | traders]] have learned to follow a [[Having an Edge in your Trading | disciplined plan]] which has an [[Having_an_Edge_in_your_Trading | edge]] that has given them the [[Conviction_in_your_Trading | conviction]] to stick to it no matter what the [[Forex | markets]] or anyone else say or does.  

In order to [[Developing your Trading Process | develop]] a [[Trading psychology | winning psychology]] you must first understand the general public’s [[Trading psychology | psychology]] in the [[Forex | markets]].  [[The_Basic_Cycle#Stage_4:_Decline/Fear | Fear]] (selling) and [[The_Basic_Cycle#Stage_2:_Rally/Greed | greed (buying)]] is what mainly dominate the [[Forex | markets]] with pit stops filled with [[The_Basic_Cycle#Stage_1:_Accumulation/Ambivalence | ambivalence]] ([[Price_Action_Analysis | price]] going [[Trends#The_Sideways_Trend | sideways]]).  

[[The_Basic_Cycle#Stage_2:_Rally/Greed | Greed]] happens when a [[Trader_Types | trader]] [[Risk_Management#Entries_and_Exits | enters]] a long position after the [[Forex | market]] is already up way beyond its [[Technical_Analysis#Average_Daily_Range | average daily range]].  [[The_Basic_Cycle#Stage_4:_Decline/Fear | Fear]] is why people hold onto losing positions far beyond how much they were willing to lose on the [[Trading | trade]] in the first place.  Like the herd, all seem to sell at the worst possible [[Forex Market Hours | time]] right before the selling has finished.  Don’t follow the herd to the slaughter.  Learn to capitalize on the herd's mistakes.

Based on these comments above we can say that ''[[The_Basic_Cycle#Stage_2:_Rally/Greed | greed]] buys too late and [[The_Basic_Cycle#Stage_4:_Decline/Fear | fear]] [[Trading#Short_Selling | shorts/sells]] too late.''  The rational [[Trader_Types | trader]] with a [[Having an Edge in your Trading | well-defined plan]] is selling their long positions into the [[The_Basic_Cycle#Stage_2:_Rally/Greed | greedy]] strength and buying back their [[Trading#Short_Selling | shorts]] near the end of the selling.  As [[Trader_Types | traders]], it is not our job to pick tops and bottoms.  Rather, we look to take out the middle chunk of a move and then move on to find another [[Trading | trade]].  

[[The_Basic_Cycle#Stage_4:_Decline/Fear | Fear]] has the ability to immobilize many [[Trader_Types | traders]].  When their [[Trading | trades]] starts to go against them they start to [[The_Basic_Cycle#Stage_4:_Decline/Fear | panic]] and for many people, [[The_Basic_Cycle#Stage_4:_Decline/Fear | panic]] turns into inaction.  What should be done is the [[Trading | trades]] should be [[Risk_Management#Entries_and_Exits | exited]] without [[The Psychology of Money Management | emotion]] as per your [[Pre-Trade_Considerations | pre-trade plan]].  You don’t have to like taking a loss but while you are in the heat of battle everything you do must be cold and calculated.  If you get out of a [[Trading | trades]] for a 2% loss and the [[Forex | market]] continues to move against that position another 10%, you would be happy to take the 2% loss over the 10% loss.  Professionals call that a successful [[Trading | trades]] even though it did not make money.

Keep in mind that most people want to be right.  Most people can’t admit when they are wrong until the pain becomes so unbearable that there is absolutely no choice but to [[Risk_Management#Entries_and_Exits | exit]] the position.  Usually, it’s the [[Forex_broker | broker]] forcing the positions closed because there is not enough margin to sustain the losses.  

Always remember that the [[Forex | markets]] will be correct no matter what your opinion is.  If your [[Trading | trades]] is not working out the way you thought it would then you need to get out and look for something else to put your money to work in.  You cannot let the [[The Psychology of Money Management | emotions]] of [[The_Basic_Cycle#Stage_4:_Decline/Fear | fear]] and [[The_Basic_Cycle#Stage_2:_Rally/Greed | greed]] immobilize you.  Have a [[Having an Edge in your Trading | plan]] and stick to it.


==Related Wikis==

Readers of '''3 Keys to Mastering your [[Trading psychology | Trading Psychology]]''' also viewed:

* [[Trading psychology]]
* [[General Trading Psychology]]
* [[Speculating]]
* [[Recommended Forex Books for New and Developing Traders]]
* [[Essential Forex Trading Guide]]