Contrary to popular belief, success on the foreign exchange market is not driven by an effective forex trading strategy exclusively. While efficient trading analysis skills are important, it is a trader’s mental perspective and personality that will determine his true success. This article will look at the most common emotional and psychological problems new traders face when trading on the forex Australia market.
Unrealistic expectations of the forex Australia market
The foreign exchange market is the largest trading market in the world. It features players from large institutions to small retail traders and boasts a return of $4 billion per day. Based on these facts one can understand the monetary incentive for any new trader. Unfortunately, the majority of beginners enter the market believing it is a ‘get rich quick’ scheme which is completely false.
In order to make a profit on the forex Australia market one must engage in hours of time consuming hard work. There is a great deal of preparation to complete before executing trades, and it is the quality of this preparation that determines the outcome of the trade. These inexperienced traders with the delusional belief of quick returns believe they do not have to develop a sound trading system. This leads to a poor trading strategy and inevitable losses. They are then confused and engage in emotional trading rather than learning from their mistakes.
From the demo to forex live
It is highly recommended that a new trader begin trading on a demo account before entering the forex live market. This allows the trader to develop a sound trading strategy and enhance their trading skills. It also allows him to improve feelings of confidence and discipline which leads to effective trading. However, many cases have been seen where traders move from the demo account to a forex live environment with disastrous results.
When utilising a demo account, the trader is provided with virtual currency instead of ‘real’ trading capital. This allows them to practice trading without the consequence of personal financial loss. While advantageous in that the trader learns to execute trades, it is also disadvantageous as some traders gain a risk-free mindset which carries over to the forex live setting. These traders will trade with personal capital without considering the consequences of their actions. In many cases the trader experience account depleting losses and is unable to take responsibility for his actions.
One characteristic which is essential in all successful traders is that of objectivity. However, this can be very difficult among new traders who are unable to control their emotions. A new trader who is experiencing their first damaging loss or exemplary profit will feel a rush of emotion which can lead to emotional trading if not acknowledged and controlled. The most prominent emotions are that of fear and greed.
Greed is felt when a trader experiences a series of profits. This can cause a trader to hold onto positions for prolonged periods in the hope of a further profit, even if the trade turns against him. Fear can occur when a trader experiences a detrimental loss. This will cause anxiety in a trader and can result in the trader refusing to trade.
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