The Psychology of Trading

The Psychology of Trading: Four Steps to Recover from a Forex Trading Mistake

Based on: Trading Psychology: Mistakes in a Trading Environment.

Making mistakes is a natural part of trading on the Forex. You may buy a currency that suddenly drops in value, sell before a currency suddenly reaches its peak value, or get too greedy and end up losing profits that you've made. From the beginner trader to the most seasoned trading veteran, everyone will make a serious trading error at some point in their Forex trading career. What's most important isn't the mistake itself, but how you are able to recover, learn and grow from it. The truth is that the actual mistake matters very little, but how you respond can make or break you as a Forex trading investor. The following are the three steps you should take after making a Forex trading mistake to ensure that you are able to effectively recover and avoid a similar slip up in the future.

Step 1: Switch up your attitude. We know, this one is much easier said than done. If you've lost money on a Forex trading venture, the first thing you'll probably want to do is beat yourself up over it. Instead, change your attitude, and understand that these types of mistakes will inevitably happen to everyone at some point or another. See your mistake not as a failure, but an opportunity to grow.

Step 2: Identify the mistake. You should try as hard as you can to find the root cause of the mistake that you've made on the market. Oftentimes, this might not be as obvious as one might think. For example, let's say that your mistake was caused by not following the rules of your trading strategy. Why did you stray? Let's say it was because you were afraid of losing money. But then, what caused you to feel this fear? In this case, it may be an indication that your trading strategy is too high risk or you have not put enough research into currency trends. Either way, identifying the multiple layers of your mistake is key to realizing how to correct your behavior.

Step 3: Record the consequences of the mistake. Consequences do not inherently have to be negative in nature. In fact, you should list both the positive and the negative consequences of your trading failure to most effectively help you correct your mistake. While negative consequences can include lost capital, positive consequences come in the form of lessons learned. You have likely learned to risk less, adjust your strategy, or invest a lower percentage of your overall capital into an individual Forex trading movement. Record these consequences as well.

Step 4: Take action to correct your mistake. Making mistakes is all about correcting your behavior. If you take no action following a flub, you are likely to lose even more money by repeating your mistake. Whether it's adjusting your strategy, changing your broker, or spending more time educating yourself on the Forex trading arena, make sure that you don't fall down the same road.

While Forex trading mistakes are an inevitable part of working on the market, there are steps that you can take to prevent yourself from losing money unnecessarily. The best way to prevent Forex trading mistakes? Getting the right education before you even think about touching that bid button is the best thing that a beginning Forex trading investor can do to help secure his future and start trading like a professional.