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BizReport : Internet Marketing 101 : April 03, 2020

Thinking like a trader: how to boost your mindset for success

You can't have lasting success without the ability to interpret charts and analyze economic and financial factors, but, to truly master Forex trading, you need to work on the psychological component.

by BizReport

Every person who considers Forex trading does so because they've heard about the earning opportunities behind it and the many success stories of people who had nothing to do with the finance field and managed, within a few years, to earn a small fortune from Forex trading.

Those who start their Forex journey undoubtedly chase after success, but success, ironically, eludes most traders. Statistics show that up to 96% of Forex traders end up closing their accounts after a few months because they lost, so what is it that the rest of 4% do to break these odds? And what's behind the high failure rate, considering that many of that 96% invested in their education? It's all in the mindset.

You can't have lasting success without the ability to interpret charts and analyze economic and financial factors, but, to truly master Forex trading, you need to work on the psychological component.

Redefine your relationship with failure
We don't talk too much about failure in the trading world. After all, it's part of human nature to be open about the things that went well and only disclose negative experiences to close friends and family. David Hirshleifer, a finance professor at the University of California, argues that this selective mentality does more harm than good because traders are inclined to follow those who succeed and when they don't have the same results, they feel discouraged and stop.

But failure is an important part of trading and learning from your losses can help you get better. When you start your trading journey, you might be tempted to believe that loss is a bad thing. That it's a sign of lack of experience, attention, or skill. But everyone loses sometimes, and you need to train your mind to perceive loss as feedback, not as a punishment.

Whether they lose $25 or $25,000, successful traders don't panic. They take a step back, try to understand what exactly didn't work, and then try again, using what they've learned.

In an interview with the Financial Times, Warren Buffet explained that loss is all part of the game: "If you played golf and you hit a hole in one on every hole, nobody would play golf, it's no fun. You've got to hit a few in the rough and then get out of the rough...That makes it interesting."

And if that sounds great in theory, but difficult to apply, it's because you trade the money you need and the pressure prevents you from taking calculated decisions.

Even if you started trading for the money, it's important not to let money be your main driver. Only use disposable income when executing Forex trades, otherwise emotions like fear and greed will get in the way and you won't be able to handle the pressure.

Understand your risk level
Every action you make on the Forex market carries a certain level of risk. Some Forex brokers offer really high trading leverage and you can make quick profits, while others cater more for beginners and offer low trading leverage. There is no right or wrong option here, as long as you understand the level of risk that you can take on and know how to manage it.

This might sound obvious, but many traders use calculators that don't display the actual amount in dollars that they can lose. They show pips and percentages, which are useful, but can be misleading. Risking 2% of your account balance might not tell you that much, but if you do the math and that 2% accounts for $500, then you have a better understanding of the risk you are taking. If you can't afford to lose that amount - or worse, if you can't pay the bills next month without it - then you don't have to accept the risk.

Control your reactions
When you're trading Forex, emotions can get the better of you whether you win or lose. Fear, excitement, greed, and overconfidence may be part of human nature, but if you allow them to interfere with your strategy, then you expose yourself to a chain of bad decisions.

Boosting your mindset for success means learning how to recognize these emotions as soon as they appear and try to ignore them when deciding what to do next. If it were easy, we'd have more success stories to tell, but, unfortunately, many people are unable to take a step back after a winning or losing trade.

No matter the outcome, you have to slow down and control your reactions. After a profitable trade, when greed and confidence start to kick in, you might be tempted to do it again, but sometimes it makes more sense to keep a neutral mindset. Similarly, you might feel frustrated after a loss and want to quit, but instead of doing that, channel your emotions towards learning from your mistakes.

Follow mentors, not influencers
Finding Forex trading advice and strategies isn't difficult these days. All you need to do is follow a hashtag and people from all corners of the world, with or without experience, will weigh in on all market events. From featured success stories of beginner traders to e-books from so-called gurus, information is everywhere, but it's up to you to filter this information and use the one that's relevant to you.

Forex trading is easy to start but hard to master and a mentor can help you navigate the market in a rational, disciplined way. Moreover, unlike influencers, who tend to present only the successful side of their story, a mentor will share all their experience with you, including the losses, which make excellent learning material.

Last, but definitely not least, don't compare yourself to other traders. Everyone has their own style and, instead of focusing on other people's achievements, you should develop your mind to seek positivity and opportunity in every situation. At the end of the day, success isn't something that just comes to you because you chase it. Success comes to those who learn from every experience, take action, and perform.


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