The market mindset trap:
The Forex market can be a very dangerous place for those not operating from the proper mindset. Trading is mostly psychological and how you think about the market is the most important factor in determining your long-term trading success. An objective mind set is necessary to succeed in the forex market. While many traders start out with an objective mindset towards the market, few can maintain this way of thinking.
The difficulty in maintaining an objective market mindset lies in the fact that you can do an enormous amount of damage to your trading account extremely quickly in the forex market. Traders have access to a huge amount of leverage in the forex market and leverage is extremely dangerous to someone who is trading from the wrong market mindset. So how can a trader achieve and maintain an objective mindset in the constantly changing and volatile arena of Forex Trading?
The correct market mindset begins with not trading money that you can’t afford to lose. You should not be using money to trade with that you could possibly need to live on or that anyone else in your family might need. This is the first step in operating from an objective point of view in the forex market. Not trading with money you might need allows you to develop virtually no emotional attachment to anyone trade you enter, this is very important if you want to consistently make profits in the forex market.
Only after we have confirmed that we are not using money we need for any day to day expenses should we move on to the next most important factor in achieving and maintaining the proper market mindset; a truly profitable and easily definable trading methodology. We need an edge in the market, a definable and consistently profitable edge is important because we need it to base our trading plan on. Money management is equally as important, if not more, than your profitable edge. However, you need to first define your trading method before you can build a money management plan.
Designing your money management scheme is the next step after you know what your definable trading edge in the market is. You definitely need to sit down and map out how much you are willing to risk every time your edge appears in the market. Most traders cannot maintain an objective mindset while risking more than 2% on any trade. This of course is only a general rule and really depends on the frequency of your trading, if you only trade once a month than you might be able to operate objectively by risking 5% per your once a month trade. However, if you are trading once a week or more than generally speaking 2% is the max you should be risking if you want to give yourself a realistic shot at not trading based on emotion.
I can recommend a very good trading method that will provide you with solid strategies for finding a truly consistent edge in the forex market. The best method I have found for trading the forex market is price action analysis. Once I discovered and implemented specific price action setups into my trading I was able to easily plan out my money management technique. This encouraged me to remain calm and confident during every trade; thus achieving an objective market mindset. There are many ways to profit in the market, however you do it though one thing is for sure; you must think objectively about all of your market related activities.
