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FX TRADING PSYCHOLOGY


fear. Eventually, 46 pain and fear will prevail and we will stop trading. We will look for some literature, browse forums, etc. Many of us have been through this. Ten, eventually, we may find our own trading style. We could even create a trading system. Unfortunately, these trading styles and systems will be influenced by our distorted perception. We will continue to be afraid of the market, and even if we have found a good trading system, our distorted perception will not allow us to use it correctly.


Figure 1. Losing Traders Decision Process Relationship


is not because we were stupid when we opened the position, but because this survival mechanism was activated in the course of trading, and the fact is that it was engaged to protect us from feeling pain.


Let’s focus again on the problem of decisions based on expectations. Tat’s what happens when we base our trading decisions on expectations. Decisions might either be right or wrong, and depending on whether they are right or wrong, the result of our decisions will be either pleasure or pain. If most of the time we are wrong, then we will feel growing pain. Eventually we will stop trading. Tis is the same survival mechanism which many people use to protect themselves from pain in the everyday life. To avoid this and to become successful traders, our decision making process should be clean and objective.


Figure 1 shows a powerful relationship 34 FX TRADER MAGAZINE April - June 2019


between the various elements of the trading decision process, which losing traders generally follow. You have to work on your mind to disconnect it from this dichotomous thinking, and stop basing your trading decisions on expectations. A series of wrong expectations can put you under a high level of stress which will subsequently distort your perception and generate more wrong trading decisions.


Te decision making process depends on our perception, which could be either distorted or objective.


Distorted Perception


It is very likely that aſter a losing trade our perception will be distorted. Once distorted, it will have exponential effects on our negative emotions, particularly pain and fear. We will be trading with the idea that we have to compensate our losses, and every failure to do so will increase our pain and our


Objective Perception Tere


are two prerequisites for


achieving objective perception and a clean decision making process:


1. Never make single-trade expectations


Even the best traders in the world can’t predict a single trade, unless they have some insider information. Tere are too many risks and anything could happen while we are trading – unexpected military conflict, earthquake, or a big buy order from a bank. We have to get rid of all expectations about a single trade.


We should never open a position with result expectations. It is much better to enter a single trade knowing in advance that we cannot predict its outcome. Tus we will not be emotionally attached to our position.


2. Try to think like a casino Tis is a difficult task for the individual


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