The market mindset trap

The market mindset trap:

The Forex market can be a very dangerous place for those not operating from the proper mindset. Trading is almost entirely psychological and how you think about the market is the most vital factor in determining your long-term trading success. To succeed in the forex market an objective mindset is necessary. Most traders start out with an objective mindset towards the market, very few can maintain this way of thinking however.

The difficulty in maintaining an objective market mindset lies in the fact that you can do an enormous amount of damage to your trading account very quickly in the forex market. Traders have access to an enormous amount of leverage in the forex market and leverage can be very dangerous to someone who is trading from the wrong market mindset. So how can a forex trader achieve and maintain an objective mindset in the ever changing and volatile arena of forex trading?

The correct market mindset begins with not trading money that might need for life’s expenses. You should not be funding your trading account with money that you could possibly need to live on or that anyone else in your family might need. This is the first step in operating from an objective view point in the forex market. By not trading with money you might need you are much less likley to get emotional about any one trade, this is crucial if you want to consistently profit in the forex market.

Once we have affirmed that we are not using money we need for any day to day expenses we then can move on to the next most important factor in achieving and maintaining the proper market mindset; a truly profitable and easily definable trading methodology. We need a consistent edge in the market, a definable and profitable edge is important because we need it to base our trading plan on. Money management is just as vital, if not more, than your profitable market edge. However, you first need to define your trading method before you can build a money management plan.

Designing your money management scheme is the next step after you know what your definable trading edge in the market is. You need to sit down and figure out how much money you are willing to risk every time your edge appears in the market. The great majority of traders cannot maintain an objective mindset while risking more than 2% on any one trade. This of course is only a general rule and really depends on your rate of trading, if you only trade once a month than you might be able to operate objectively by risking 5% per your once a month trade. However, if you are trading once a week or more than generally speaking 2% is the max you should have at risk per trade if you want to give yourself a realistic shot at not trading based on emotion.

To find a truly consistent edge in the market I can recommend the only trading method that I have found that provides time tested strategies. The best method I have found for trading any market is price action analysis. After discovering and implementing specific price action setups into my trading I was able to easily plan out my money management technique. This allowed me to remain calm and confident during every trade; thus achieving an objective market mindset. There are many ways to profit in the market, however you do it though one thing is for sure; you must think objectively about all of your market related activities.