In Forex trading, and in other forms of trading, psychological factors pose an indubitably essential role. Some experts even argue that these factors are the most paramount factor. However, traders often negate the salient gravity of such a state of mind.
Wayne Ko, the Head of Research and Education in Fullerton Markets, canvasses the importance of psychological factors in Forex trading. In doing so, he even argues that such factors constitute 55% of gainful trades ahead of strategies and money management, which amount to 15% and 30% respectively.
Regardless of its importance, traders often get full of themselves and invalidate these factors, thus leading to their very own demise. To prevent such loss, here are the misconceptions you should realize.
Also Read: A Reliable Forex Trader, Is That You?
Knowing Strategies Wraps Everything Up
Traders tend to think that knowing every single strategy equals gainful tradings in the forex market. Although strategies are crucial, the foregoing statement is far from the truth.
The thing is, humans are emotionally fragile creatures. Ergo, poor emotion managements cloud humans from making the due judgment. The same goes for forex trading.
Possessing the right state of mind assists traders in executing the appropriate strategy at the right time to get good trading opportunities. Also, it prevents unnecessary emotions to cloud your judgment over the market’s volatility. In short, both emotion management and knowledge about strategy should be in proportion.
Well-Performance in Demo Accounts Equals to Expertise
Some traders, particularly the novice traders, appear to think that their performance using demo accounts will 100% reflect their performance in the real trading. This is, without objections, definitely inaccurate.
First and foremost, it is important to realize that demo trading is a simulation, different from the real foreign exchange market. One does not become an expert truck driver after playing truck simulators.
Demo trading works like a behavioral instructional method for it, in the first place, intends to familiarize novice traders with trading market. In other words, it rewards novice traders if they perform ‘correctly’ during the simulation to reinforce their interests in trading.
Real trading, on the other hand, is very dissimilar from demo trading to some extent. While demo trading allows traders to trade using virtual money on the platform, real trading costs actual money, thus signifying more responsibility. Remember, with great power comes great responsibility.
Experts Who Emphasize on Psychological Factors Just Don’t Want to Share Their Knowledge
To begin with, this is so wrong. Experts who emphasize on psychological factors actually warn you about the significance of those factors in trading.
Put simply, when they are discussing psychological factors, they are sharing their trading experience. This experience molds their knowledge and equips them with instinct to trade at the right moment and manner. Of course, it comes with the knowledge pertinent to strategies as well.
Moreover, Wayne Ko mentions four human characteristics- fear, greed, hope, and ignorance- that clothe every trade. These traits hinder traders to conduct a trade, let alone making profits. While this information might be cliche, it is still the truth. Face reality.
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