Published On: Mon, Dec 3rd, 2012

How To Improve Your Forex Trading Results

Learning how to control your emotions when you are trading Forex is a difficult skill to acquire. If you have not enhanced your psychology sufficiently, then you will suffer stress problems whether you lose or win. You may imagine that everything will be great if you are winning. However, this can be a dangerous attitude to acquire because a winning sequence can cause you to become overconfident resulting in possible overtrading. You will also find that greed can affect your judgement causing you to constantly interfere with your active positions.

When you lose control of your emotions then you could suffer financially because you start to experience problems such as the following:

1.  Not exiting positions after your strategy has flagged you to do so.

2.  Failing to allow your winning trades to run.

3.  Not opening new positions when your strategy advises such action.

4.  Exposing your equity to unacceptable levels of risk by overtrading.

5.  Not coping well with hesitation and uncertainty.

6.  Panicking and exiting trades prematurely.

If you want to succeed at Forex trading then you must acquire the psychological strength that will enable you to control your emotions. Many experts recommend that you should maintain a trading diary to assist you in attaining this mindset. Fundamentally, you will need to record precisely the key details of each position you open. The four main types of information that you should store are listed as follows:

1. Date and time of each position opened. You can use this information to locate a particular trade very quickly.

2. The entry and exit strategies for each position entered. You can use this data to evaluate the performance of your strategy and determine if it needs improving.

3. Description of your feelings. You can utilize these records to detect your main behavioral patterns at a later date.

4. Entry price, exit price, and lot-size of each trade entered. You could study these details to detect possible patterns with your trading style such as, ‘did you comply with your money management strategy consistently?’ and ‘did you overtrade regularly?’

After you have acquired a reasonable-size batch of results, you can then study this information in order to identify trends such as the following:

1. Did you move your stop-loss during the trade?

2. Did you overtrade?

3. Did your emotions affect your trading?

4. Did the market proceed as you expected?

5. Did you need to make a draw-down?

6. Did fundamental releases affect your positions?

7. Did you trade with the trend?

8. Did you allow your profits to run?

9. Can you now improve your entry and exit criteria?

10. Could you have managed your trades better?

You will gain many benefits by maintaining a Forex diary because this activity will enable you to analyze your trading data in order to identify improvements and trends. You will then also be able to assess if you are constantly making the same mistakes as well as being able to detect which of your trading actions are producing the best profits. For instance, many Forex traders constantly make the following common errors:

1. They do not understand the concepts of leverage causing them to overtrade and expose their equity to very high levels of risk.

2. They become too dependent on technical analysis. Instead, you will improve your profitability if you also include the concepts of fundamental analysis into your trading strategies.

3. Novices select poor stop-losses. You must design your stop-losses by always using the concepts of your money management strategy.

4. They underestimate the impact that their emotions can have on their trading.

5.  They do not know how to evaluate their trading strategies. If you utilize a trading strategy without validating its performance, then you will suffer losses.

6.  Novices do not fully appreciate that Forex is an ever-evolving entity. This means that you must evaluate the performance of your strategies on a regular basis.

7.  Beginners have a dangerous tendency of trading using the shorter time frames.

In summary, you can sufficiently improve your ability to trade Forex successful if you embrace a professional approach. For example, using a diary to record the precise details of your trades will provide you with the many benefits listed above.

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About the Author

- Marcus Holland has been trading the financial markets since 2007 with a particular focus on soft commodities. He graduated in 2004 from the University of Plymouth with a BA (Hons) in Business and Finance.