Forex trading psychology: how to remain objective when trading

Trader's objective

One of the biggest challenges you'll face in your quest to becoming a profitable forex trader is maintaining objectivity while trading. While there are many factors which contribute to your loss of objectivity in a given situation, there is a clear and defined path you can follow to regain it.

More often than not, losing objectivity occurs when you micro-manage a situation. It may be in the form of watching the tape or over-thinking a position but in essence, you lose sight of the big picture, or why you were in the trade in the first place. As a result, you make poor decisions and you lose money.


How can you get around this?

Know why you did what you did, and always ask yourself:

- Why am I in this trade?
- Why do I like/not like this position?

These questions will help you to continually clear up your view of things as data (as well as your own bad habits) attempt to fog up your view.

The more difficult it is for you to explain your reasons for doing something, the more likely it is that you have lost objectivity in the situation. If this is the case:

1. Acknowledge that you have lost objectivity. Now that you are aware of the problem, you can begin to deal with it.

2. Remove yourself from the day-to-day noise and write down what your original expectations were. Clearing off your mirrors will tell you which way you're going.

3. Begin to "think backwards" by creating three columns with the following headings (Support, Don't support, Undecided). This will force you to objectively lay out and evaluate the situation.

4. Ask yourself:"Based on what I wrote down in each column, if I didn't have an open position, what would I do?" Asking yourself this question forces you to re-evaluate the trade from an unbiased perspective.

5. Compare your answer with your original belief in order to create a win-win situation.

If there is a discrepancy, you can be proactive by creating a new game plan which may involve removing some or all of the risk or even reversing the position.

If there is no discrepancy, you have instilled a deeper conviction in your original belief and can then hold or even add to the position.

In the forex trading arena, feeling lost is not nearly as significant as how long it takes you to get back on course. We all get lost from time to time and the concept of "thinking backwards" can serve as a roadmap to regaining objectivity in your trades.

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