Top 5 Trading Mentality Tips For New Forex Traders
Tip 1) Be Comfortable With Losses
Tip 2) Have A Positive Vision
Tip 3) Accept It When You Are Wrong
Tip 4) Know When To Take Profits
Tip 5) Self Reflect On Trades
A sound trading psychology is what separates the very best traders from the rest. The traders who show no emotional attachment and trade almost robotically in nature are the ones who have the ability to make the most money. Here are our top 5 tips for a sound trading mentality that can help you increase your profits!
Tip 1: Be Comfortable With Losses
In reality, you will incur losing trades and losing streaks. It is virtually impossible for any trader in the world, no matter how experienced, to win every single time.
Therefore, you WILL have losses and you NEED to be comfortable with that. One way to become comfortable with losses is to track your win ratio. For example, if you find that your win ratio is 60% then you will have a much better idea of how much risk vs reward you should take on each trade. With a win ratio of 60% and a 1:1 risk vs reward ratio you are still making money therefore your losses are not as significant and are an integral part of your overall winning strategy.
The reason it is so important to be comfortable with losses is that losses impact our emotions. When traders take a loss they can become frustrated and throw their trading plan out of the window. The trick is to take small losses that you are comfortable with. Even if you take a small loss you are doing something right and that is managing risk effectively. Be comfortable with losses.
“Losing trades are just part of the trading game.”
Tip 2: Have A Positive Vision
A trader should always be thinking positive and visualise making profits. A traders overall focus should be creating a positive vision for the upcoming trading days and months. Always be thinking about how you can trade the current market conditions and make money from it. Be prepared for the upcoming trading days.
You should not get downhearted about previous losing trades. It is good to analyse and learn from these losing trades, but don’t ever fret. Losing trades happen. It will reek havoc on your mind if you let it. Have a positive vision and focus on the next trades. Keep focused and keep visualising making profitable trades. Profitable trades will then start happening again. You can do this!
“Positivity breeds positivity.”
Tip 3: Accept It When You Are Wrong
This is true in many different walks of life. People sometimes need to accept it when they are wrong and traders are no different! Even the most successful traders make bad trading decisions. However, the most successful traders are those who admit they are wrong, therefore cutting their losses much earlier.
Many new traders give up on their trading goals too early. This is usually because a newer trader has let a losing trade go too far negative against them. Usually if one has a stubborn streak they may believe the market will turn back into their favour. But this rarely happens. Really when a trader cannot accept they are wrong they are gambling. They have deviated from their original trading plan and anything can happen. More often than not this results in a trader blowing their account!
“Lose the fear of being wrong.”
Tip 4: Know When To Take Profits
This is quite similar to knowing when to cut losses. Some traders forget all about their money management plans and get way too excited when their trades hit a profit. Imagine this. The market goes against you 50 PIPs. You do not exit the trade as your risk vs reward is 1:1 risking 100 PIPs in order to make 100 PIPs. The market then goes up and you are now 20 PIPs in profit. This is worth $200 profit to the trader as they have a standard lot open at $10 per pip. What happens next?
… This trader got way TOO excited. You know what they did? They closed out with 20 PIPs up so $200 worth of profit. So looking back at the trade – they were down 50 PIPs, the market came back, and then they close out with 20 PIPs profit. The trader risked 50 PIPs to make 20 PIPs which in fact this is a negative risk vs reward. They should have stuck to their original 1:1 risk vs reward. However, emotion got the better of this trader and they saw the profits and took them. Remember to let your winners run!
But, don’t let your trades run wild – once you have made 100 PIPs you should take your profit and leave, you never know the market may suddenly drop and you could lose all 100 PIPs that you could have profited on.
“Let your winners run, but don’t be greedy.”
Tip 5: Self Reflect On Trades
At the end of each trading day, month and year it is important to take some time to reflect. This self reflection needs to include an analysis on the psychological side of trading. What were you thinking when you placed a trade? What were your emotions? Were you fearful? Were you greedy?
This self reflection is so important when reviewing the psychological aspect of trading. It is critical for good performance. A sound mind will lead to a sound performance. When you self reflect on your trades it can only be good for your profitability. Your performance WILL improve. Self reflection is the greatest way to learn from your mistakes. Especially from a mindset point of view.
“Take a step back and reflect.”
- The psychological side of trading is one of the most important components in trading.
- Always trade with a clear mind.
- Cut your losses and let your winners ride.
- Be comfortable with losses. Accept they are part of the game.
- Be positive when trading and self reflect after trading.