How Important is Psychology in the Success of Forex Strategy?

How Important is Psychology in the Success of Forex Strategy?

Some time ago, there was a trader who said this spicily to me: “Trading psychology is b * llsh * t ! Few psychology. Turn loss which is wronged by psychology, turn of profit, lu-praising strategy as high as the sky. Means that if you lose only, it means you are crazy. If so, just go to a psychiatrist, who knows you are sane and can continue to profit. Is that right ? If you want profit, you are looking for a forex strategy that is great. Lu learned until good, just entered forex trading . Not to a psychologist! “

Frankly I am a bit difficult to follow the logic of thinking of that person. I myself do not know whether he is a successful trader, or even a failed trader who is in the denial phase and refuses to correct his mistakes, but prefers to blame the forex trading strategy he uses.

But that doesn’t matter. What I caught was that the point was that he considered trading psychology to be exaggerated. Is that true?

Make decisions at critical times

Even though a group of people do think that trading psychology is exaggerated, in my simple view it is not the case. I myself believe that a trader must be able to think clearly in any difficult and important situation. He must be able to make decisions without hesitation under conditions of pressure when prices fluctuate and make his position experience floating loss . He must be able to refrain from opening too many positions just to accelerate the acquisition of profits, let alone to accelerate reducing losses in a way – for example – martingale. He must be able to refrain from closing the profit position too quickly, but he can also close the loss transaction when the trading system is already required.

If a trader is not able to handle the stress that arises when trading, however sophisticated the forex trading strategy he has will not help much because he will not be able to execute the strategy appropriately.The causes include fear or greed, or even both at once.

Not all Turtle Traders are champions

Do you remember the success story of Turtle Traders cared for by Richard Dennis and Bill Eckhardt? They are a group of traders who start learning forex trading from ZERO. All group members are taught trading methods and techniques along with the same risk management principles. You need to know that not all Turtle Traders members achieve the exact same achievements. There are some people among them who are very prominent, some are less successful. We just call them as “Ordinary Turtle ” and “Turtle Champion”.

The “Ordinary Turtles” were unable to survive under mental pressure when the market shook their capital. They tend to close their positions too quickly, or even let their positions lose too long. They are not able to optimize the trading system that has been given to them.

Meanwhile, the “Kura-Kura Champion” actually did the opposite. They can carry out a very well-known principle in trading: “Cut your losses short, let your profits run.” The key to carrying out this principle is the ability not to panic when market volatility increases, but is able to maintain confidence in the arguments underlying decision making for a transaction. That includes cut-loss.

What is the difference between the “Champion Kura” Champion “Ordinary Turtle”? The answer is their psychology.

Normal driver vs. racer

I always like to use this analogy.

An ordinary driver – like me – will not be able to drive Formula 1 cars optimally. If I am given the opportunity to drive this sophisticated car and Lewis Hamilton (Formula 1 world champion) drives an ordinary sedan that only has a 2000cc cylindrical engine, then we are asked to race, it looks like Lewis Hamilton will win. Why? Because I have no mental drivers like Lewis Hamilton. The maximum speed I’ve experienced during driving, stuck at 110 km / hour. I don’t dare to go faster.

A BBC Knowledge television program called “Top Gear” once aired coverage when one of the event’s hosts , Richard Hammond, tried to drive Formula-1. The result? He shouted more – despite the mix of fear and hysteria – when he spurred the car at high speed.

In fact, Hammond is an experienced driver. He was very familiar with the car and the ins and outs. He has spurred several super cars at high speeds. But Formula-1 is a completely different thing.

A Formula-1 driver usually drives his car in full throttle for hours. Every bend is swung without much stepping on the brake pedal. Unlike Hammond, who is more on the brake pedal than the gas pedal.

What distinguishes Hammond from a real Formula 1 driver – besides experience – is mental.

Strategy is also important, but …

We are not denying the importance of the role of a good forex trading strategy. It is possible that you are a super disciplined and “cold” trader, in the sense that it does not involve emotions in trading, but that does not mean without a profitable strategy .

Trading psychology does not necessarily turn a bad strategy into a brilliant one, but it can help you to complete your ability to build a good trading system.

On the other hand, mastering psychology in trading can make you stick to the trading plan or trading system that you have tested for efficacy.It’s simple: without discipline, it’s impossible for you to stick to the plan ?Well, this discipline is one part of trading psychology.

The key to the success of a trader – back again – is 3M: Mind, Method, Money. All three must be balanced and proportionate. The triumvirate cannot be separated. The absence of one element from 3M will cover your chances of success in trading.

So, still want to ignore the importance of psychology in trading?

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