By Special Correspondent
People who are prone to rejecting losses, obviously prefer not to lose rather than win. For most people, losing $100 is not the same thing as not earning the same amount. However, from a rational point of view, this is the same thing – in both cases, there is a negative result of $100. According to JustForex studies, the psychological shock of losing is about two times more powerful than the gain.
For trading, the loss aversion hinders the mechanical following of the system, since the costs wasted in following the system are taken much more seriously than the possible gains from using the system. When people follow the rules, they perceive the pain of loss much sharper than if they suffer the same damage from lost opportunity or due to ignoring the laws of the system. Thus, a loss of $100 is perceived as painful as a missed opportunity to earn $200.
So what does a trader need and how to cope with psychological barriers?
- The trader must continuously improve his skills. Work in the market is associated with a constant process of self-improvement. The following actions determine the professional growth of a trader:
- You need to learn constantly. It is necessary to study new methods of technical and fundamental analysis and try to identify the most popular nowadays theories and methods of analysis.
- You should look for new ways of market research. Market research, the identification of new laws, the creation of own rules and their testing are essential elements of professional growth. First of all, new ideas should be tested on the data of previous periods.
- You should study the history of the market. First, you should remember that everything repeats. Second, the study of the “history” of price movements convincingly demonstrates that anything can happen on the market.
- You need to register all events occurring in the market. Records are the primary material for your research. It is necessary to record: your trading plans and their marketability, market reaction to events and economic indicators, your psychological state during trading, etc.
So, only those who are not standing still are improved. A real researcher should be interested in everything.
- A trader should be able to wait for the forecasted values:
- When waiting for the value of the prices corresponding to your entry point into the market, you must wait for these values. Although it is possible to allow some minor deviations from these prices.
- When the market reaches the level at which you were going to “cut off” losses, this must be done decisively and quickly.
- While waiting for your goal to make a profit, the situation is more complicated: you should not be greedy, but you should be able to be content with a “bird in the hands”: on the other hand, if your forecast is fulfilled, then you should not take any abrupt action ahead of time. Allow profits to grow.
- You must be able to make decisions. Often fear does not allow to open this or that position. However, if you trust your trading strategy and are confident in it, then do not be afraid to make this or that decision. From the other hand, many traders often see that the deal goes against them, but they hope that the price is about to be adjusted soon, and they will get a profit. However, the price goes further and further against them. They can’t force themselves to close the deal. Do not fool yourself and close the unfortunate position! Even if you lose some amount, you can always close the deal and then open a better one.
It’s crucial to practice trading a lot. For those who are a beginner, forex broker offers Demo trading. It’s a kind of simulation where you trade virtual money in a real environment. Demo accounts are free of charge, for instance, at JustForex you just have to enter your e-mail to open it.
- Do not act without a plan. Having a detailed trading plan allows you to avoid spontaneity and emotionalism in decision-making. In drawing up a plan, it is easier to evaluate the market than when observing price movements objectively.
- Be able to cope with emotions. Very often you will be overwhelmed with emotions. It will seem to you that you need to make a deal right now; otherwise, you will lose an excellent opportunity! What to do in this case? You need to learn how to stop if your trading strategy says so, even when it seems that you will hit the jackpot. If you can’t wait, then open a deal on a small deposit or a cent or micro account. Then you won’t lose too much.
And the most important thing is not to give up and keep training. And then everything will work out!