Lesson 7 – Forex and psychology

Required for the forex course

Forex account: free account at Markets.com

Duration per lesson: about 10 minutes

Trading on the forex market is not for everyone, but if you have made it this far in the trading course you probably still find it interesting. Forex trading could be something for you. The beginning is in fact the most difficult. All those new forex terms, following the Forex news, learning to read Forex charts, and Forex trading psychology… it requires some perseverance and courage. But the positive side is clearly there; Forex is fun, exciting, addictive, and potentially very profitable! You do not have to take big financial risks at all, because even with a small starting capital you can already make a lot of money.

Do you belong to group 1 or group 2?

The beginners who are getting increasingly enthusiastic when reading the articles in this forex course can be divided into 2 groups:

Group 1 finds it very interesting and is keen to learn more about it, but first wants to absorb as much knowledge as possible before investing money. Traders in this group prefer to first trade with a demo account, and deposit real money on their forex trading account after they practiced with a demo account.

Group 2 prefers to get started as soon as possible and immediately deposits $ 1,000 to start trading immediately. These traders prefer to experience the tension of trading with real money.

Both groups are right in some way. To become successful in Forex you need knowledge. After all, you want to be able to predict the market better than others, which requires studying some trading techniques. That means reading articles, asking questions, discussing with other traders, and perhaps reading a book about forex. In this respect group 1 is right.

Forex trading, however, is as much an art as a science. You need to develop a feeling for the forex markets, for the effects of news reports on the markets, and for the application of technical indicators. The only way to develop this feeling is by practicing.

Besides, trading with demo money is not the same as real money forex trading. If there is real money at stake, your suddenly start feeling emotions. You are confronted with your own greed because you want to get the most out of a profitable trade. You are confronted with your fear, because you are afraid of losing any money. Finally, you will be confronted with self-deception because you keep a losing position instead of closing it. Developing self-knowledge and discipline to deal with these emotions is perhaps even more important than gaining theoretical knowledge and technical skills. In that respect, the Group 2 approach is the right one.

Forex trading psychology

Beginners from both groups can eventually develop into successful traders. You should not try to change your learning approach, because you are who you are. Just be aware that both groups exist and both groups are right to follow their approach.

If you belong to group 2 by nature, take a step back from the market a bit more often and start reading some more background information. For your next trade, try to find a new trading instrument instead of those you already knew. If, on the other hand, you belong to group 1 by nature, start trading with real money more often. You do not have to trade with large amounts, but just the effect that there is actually €10 at stake makes you feel different than when you just trade with demo money. It is very important to experience this feeling.

Your own trading account

To find a good balance between the two groups, we recommend not to start with too much money. Never trade with money you cannot afford to lose. First of all, there is always the risk that you will lose, but also because if the money is too important for you, you will make worse trading decisions. If you depend on your trading performance to pay your bills next month, your trading decisions will almost certainly be influenced, and not for the good.

A starting capital of between $ 300 – $ 500 should get you a long way already. This is sufficient to experience the tension of trading with real money without the risk of losing too much money. Choose your stop losses wisely, so that you that you do not risk losing your entire starting capital in a single trade. As your capital grows, you can gradually take on larger positions.

Another important success factor is that you use forex software which you like and understand. If you are trading for a while you will notice that you can starting spotting certain opportunities in a glimpse. However, you need a clear graph which you are used to working with. One of the best forex trading platforms is that of Markets.com, which we also used in this course to explain things. It is very clear and easy to use. Another trading platform we highly recommend in Plus500.

For more information about forex brokers please visit the page with forex broker reviews.

Lesson 1 – Why Forex: “The Turtles”

Lesson 2 – What is Forex

Lesson 3 – Interpreting Forex prices

Lesson 4 – How to open a forex position

Lesson 5 – News and rumours

Lesson 6 – Fundamental and technical analysis

Lesson 7 – Forex and psychology

Lesson 8 – Ten trading tips for beginners