When people talk about various professions, they mostly point to the skills and knowledge required to get into that field and become successful. The mental aspect is usually neglected. The same is true for the profession of a forex trader.
It is true that being a successful forex trader requires a lot of knowledge, skills of execution, and of course experience. But the mindset of a forex trader is a whole other area that must be discussed in order to succeed in this domain.
It takes a tremendous mental toll to be a full time forex trader. Without the proper mindset it is simply not possible to be a good trader. This is why in this article we want to take a look inside the mindset of a good forex trader to see how many different types of mindset there are and how you can develop the right forex mindset.
What Are the Different Forex Mindsets?
Discussing the psychology of any profession can be quite difficult. Since the mind is of course complex and intricate itself. This matter is especially true in the case of forex trading, since a trader ought to spend hours on end alone with only his or her thoughts and no one else. So having a powerful and firm mentality is doubly important for forex.
In order to discuss the variety of mindset types in forex trading, we can consider the mindset of a trader from two perspectives and two spectrums:
First in terms of perspective and outlook, whether the trader is optimistic or pessimistic such as the following spectrum:
Secondly, in terms of risk taking, whether the trader is a risk taker or too cautious to risk as shown in this spectrum:
So we are going to consider the mindset of the good forex trader in terms of these two perspectives.
How Can Forex Traders Develop a Positive Mindset?
Though some might believe that being a pessimist equates to being a realist, it is simply an overrated idea. The two do not have a one to one relationship. Of course, realism is extremely important for forex traders, but nothing can beat an optimist!
Having a winning and positive attitude is extremely crucial in order to be successful in trading. There are two basic ways you can implement to develop your positive attitude in forex.
First of all, you can work on the psychological aspect of the matter. Work hard to drive away the negativity and become an all-round optimistic person. And of course, there are ways that can help you become an optimist.
For example, they say you should always think in terms of percentages and not dollar amounts. This will help develop a realistic mindset which is at the same time also optimistic. Therefore, a profit of 100 dollars with $1,000 initial capital might seem low, but if you consider it as a percentage, that’s a 10% profit – which is good in anyone’s book.
The percentage mindset is especially useful when you lose, and let’s be honest you will sooner or later face losses. Losing 3,000 dollars with an initial capital of $50,000 might seem much, but a loss of 6% is clearly much more manageable.
Secondly, other than the psychological aspects of developing a positive mindset, there are more objective and scientific approaches you can take in this regard.
Having an important presentation, for example one that could lead to a big promotion at work, is naturally anxiety inducing. In such situations, the most logical way to manage negative thoughts is to prepare as much as possible.
Similarly, if you don’t want to be pressured by negative and intrusive thoughts while trading in forex, then increasing your knowledge will help you be more confident and thus more optimistic.
So make sure to take advantage of any opportunity and chance possible to increase your knowledge of trading and keep learning. The more you learn, the more confidence and thus optimism you will have.
Get after that optimistic mindset. Remember, you need to think like a winner in order to be a winner.
Do You Need to Be a Risk Taker in Forex?
So the first aspect or perspective of a forex mindset was the general outlook of the trader. A forex trader ought to be optimistic. But what about the second aspect, taking risks?
Taking a look at the spectrum above, you can see being cautious is on the right side, the good side!
But is it true? Well, yes and no.
Because this matter is not so easy to understand. There is not an absolute right or wrong answer here.
Generally speaking, having a risk taking personality is very important in financial markets, including the foreign exchange market. This is of course understandable, since making money trading is clearly a risky business. So if you are a risk taker, that can help you make potentially more profitable ventures.
On the other hand, caution is also recommended in forex trading. Being too much of a risk taker might mean not closing a position when you should and sustaining absolutely unnecessary losses.
So there must be a kind of a balance between taking risks and also being cautious.
Furthermore, it is important to note that there are various trading styles suited to different types of mindset and personalities.
For example, if you are an extreme risk taker, then certain styles such as scalping and day trading might be more suitable for you. especially scalping where you would have to open and close positions in matter of seconds and minutes. So it is high paced trading for those who can absorb the high intensity of trading in that way.
Contrary to scalping or day trading, there are also trading styles that are more suitable for cautious personalities. So if you have a cautious mindset, you can opt for position trading. Position trading would allow the forex trader to open and close positions that can take as long as days, weeks, and in certain cases even longer. This would create a comfortable window of consideration and evaluation.
This means you can actually pick the right style of trading in forex according to your personal mindset.
However, please keep in mind that having a certain type of mindset certainly does not mean you need to stick with it. Far from it in fact. With enough practice and perseverance, you can train your mindset however you want.
Any profession demands the right mindset that is most suitable for the conditions that it demands. The forex market is highly liquid with an incredibly high trading volume. Therefore, generally speaking, the best mindset in forex is one that is optimistic. The mindset of a winner.
Furthermore, you need to be able to take risks. Lots of them. Especially if you want to pick trading in forex as your career. The life of a full time trader is very stressful. So you need to have a high capacity for risks.
Of course, even if you are not optimistic, or if you are too cautious, you can develop your mindset toward the suitable mindset for trading in forex.