It’s not unusual for many new traders to suffer from performance anxiety, or the fear/phobia that arises by the requirement to take a forex live trade, in real time, with real money.
The causes of this fear can be many. More often than not, this fear rises from past losses that were so large that the trader was traumatised and can’t bear the idea of repeating a mistake like that and having to suffer the same emotions that were tied to the previous failure. When this occurs, a new forex trader will even see a valid entry signal but only be able to focus on the potential for loss, causing them to be unable to take what is a perfectly valid trade.
If you’re afraid to lose you won’t trade. Even the best traders of the Forex market spend a good chunk of time being wrong and having to cut losses. The difference is they do it ruthlessly before it causes their account and mindset too much harm. Think of losses as either ‘trading tuition’ when you’re new to forex trading, or as ‘the cost of doing business’ when you’re an experienced trader. Big losses are more often than not the result of a trader not doing their homework and they not only hurt a forex trader financially, but also psychologically, causing them to lose confidence in themselves and their system.
Trading is a mental game. That means that if your trading mindset isn’t right, then your trading is going to suffer, bigtime! Conversely, if you have the right psychology behind it, then you’ll be unstoppable. Being a trader requires patience as well as confidence. Think of yourself as a sniper, you have to have the ability to wait for a setup, point at the target and then as soon as the moment is right, pull the trigger and take the trade. And, you must accept that there is risk, and acknowledge that risk is required to reach the reward.
Here are a few tips on how you can improve your mindset in forex trading.
It takes time to build the confidence to take a real-time entry with real money in the forex market, and that confidence comes from knowing that your system is backtested through multiple market conditions, so you know the probabilities of success and failure. Then, once you understand how your setup behaves across various conditions you’ll have the confidence needed to hit the ‘trade’ button.
Having a sound, preconceived idea of which price level your stop loss will be on any given trade, as well as your potential price target will give you an idea of the potential risk/reward outcome of a trade set up. Knowing this will give you confidence to place the trade. After all, it’s much easier to know that you’re risking $100 to make $350 on a trade when the odds are on your side if you time your entry just right.
Having robust position sizing strategy will ensure that even if your stop loss is hit, you’ll only lose a very small portion of your capital, thus helping to eliminate a lot of the fear of failure. The significance of any single trade should be reframed by knowing that the current trade is just one out of the next hundreds and should be treated as such. It’s easier to overcome the anxiety of trading when you trade small enough so that any one trade or a series of trades will not affect your long term trading success.
To keep your trading low-stress, it helps to trade what you know and are familiar with. Trading a chart pattern, a forex pair, or index that you have traded for years is familiar and you come to notice the ‘personalities’ of the particular instrument that you’re trading, creating confidence. Many traders end up underwater by trading unfamiliar instruments.
Most of your performance confidence will come from having a comprehensive trading plan outlining what you’ll do when the market opens or your setup appears. Knowing that your trading decisions are based on what’s happening with price at any given time will ensure that you’re not trapped by emotions or ego while trading. This allows you to beat anxiety and operate with complete confidence in yourself and your system.
Source: Vantage FX Blog