The Psychology of Trading

I personally feel that the psychology of trading is the most important lesson in all the lessons you’ll be learning here as you go through your Bootcamp Training. You have to master it to beat your emotions which can be extremely detrimental especially when they take over while you are trading.

I know many of you would think that it’s all fluffy stuff, but let me assure you, I thought it was the same until I started reading the right books. Simply put, there’s no point having the best forex trading strategy and system in the world if you can’t control your mind. I’ll do my best to summarize the key points everyone should know from my 5 books that I’ve went through on trading psychology.

Never ever revenge trade in forex, it’s the fastest path to blowing up your entire account.

Revenge trading is the act of trying to make up for your losses once you’ve made a losing trade. I’ve seen hundreds of people go on a good winning streak that has brought their account up to +50% and lost it all in a day because they went revenge trading.

If we make a losing trade, which will DEFINITELY happen, you have to see it as part of a probability game. The TFA Sniper is 70-80% accurate, meaning out of every 10 trades, you can reasonably expect 2 or 3 losing trades. Out of every 100 trades, you can reasonably expect 20 to 30 losing trades. This is just the nature of how trading works – you can’t expect to win every single one of your trades. Losing trades will occur and when they do happen, don’t panic, nothing is wrong with your settings, nothing is wrong with the universe, it is just natural so don’t panic one bit.

The key is to utilize the law of large numbers in our favor and for that to happen, we need a large amount of trades over time. This is certainly not possible if we chase our losses repeatedly.

Never ever chase your losses in forex, it is the fastest path to blowing up your entire account

Never ever chase your losses. This is crucially important because chasing your losses is, along with revenge trading, one of the fastest way to blow up your entire account.

The main reason chasing losses is so extremely dangerous is because it simply opens you up to a whole bunch of revenge trades as you compound on the losses you had made. The more losses you commit to a trade, the harder it is for you to simply accept that the trade is a losing trade and you should just walk away from it.

A solution to this is to have a very clear reminder (personally I use a post-it) to tell you not to chase my losses after I have gotten stopped out. There are other useful solutions too which involves the very effective EFT Tapping techniques for trading, it’s really simple to do and it honestly helps a lot in overcoming the mental difficulties one has in trading (it may sound/look like hocusbogus but it really isn’t :

This is one of the best rules I live by and it has helped me live to trade for many days and years since. If I make 3 losing trades in a row on any given day, I’ll close my MT4, turn off my computer and take a walk. Clearly my mind is not in the game or the market is just disagreeing with me or I’m not in tandem with the market – there can be a hundred and one reasons but all I know is that today is my off day and when you’re on a run of 3 losses, you’re more likely to continue that run of losses.

This is also a good practice as mentally your mind would have calculated on a subconscious level how much you had lost for the day and would search for ways to “make it back”. This is potentially very dangerous as that is the first tiny opening that could lead you to a day of revenge trading and ultimately, regret.

The very nature of trading and the freedom it brings tempts us to not have rules. This is one of the deadliest mistakes a trader can make. More often than not, we are tempted to enter into trades that marginally meet our requirements. Our minds come up with a million and one excuses to take a convince us to take a trade because it is “now or never”. Similarly, our mind comes up with many reasons too on why we should close out our trade early in case the market turns against us – I’m sure many can relate to closing out a trade early on “gut” instinct or intuition, only to see the trade move really well in our favor leaving us gutted.

There are many rules that we establish here for the sake of optimum performance. Examples include not trading 15 minutes before a big news event (market tends to whip you out and is unpredictable during those moments), avoid good entries when the spreads are too high and being patient while waiting for a good entry point (when you’re scalping 10 pips, waiting for a tiny 2 pips in your favour is effectively 4 pips to your advantage).

When we enter into a trade, we’ll have the tendency to watch it unfold pip by pip, and that is okay, really. But suddenly, the itch to adjust the TP or SL kicks in. Why not give my trade a little more breathing space by increasing the SL? Or how about I click that tempting Close All Long Trades button and lock in the 5 pips of profit I currently have since the market looks like it’s moving against me, right?

All these small tendencies can have a huge impact on your Profits at the end of the day, trust me, I’ve lived through every single one of these tendencies and urges. And because I have lived through these and learnt the hard way how you can lose your account, I have spent close to a year developing the a really powerful trade manager EA which completely takes the disruptive emotions out of trading. It helps you automatically adjust your take profit, stop loss, breakeven, scale out of profitable positions, kick in trailing stops and ultimately, to maximize your trading performance.

All these go a long way to helping you beat your emotions when they try to take over and attempt to jeopardize your trading performance.

It’s very important that we focus on the process, not the result. For every trade we do, we should be focusing on the process it takes from entering, managing and exiting it because if we focused on results, it would paint a terribly bad picture. Our ultimate goal is to be the best trader we can be, and that involves following our process rules exactly as they require.

Here’s an example from a diet club to better illustrate the meaning behind focusing on the process and not the result :

A diet club makes the horrible mistake of measuring people based on their weight. But the problem with this is a person’s health is not measured by his or her weight – many people experience weight fluctuations especially when they exercise and fats get converted into muscle (which is heavier than fat).

Every week, upon measuring the person’s weight, the diet club concludes that because the person hasn’t lost any weight, he is not getting healthier (this is the focus on the result). However, the person had been exercising for 5 days a week and gained a lot of muscle (meaning he is healthier based on his processes).

This is exactly why a trader should focus on his processes, not his results. So here’s a breakdown of an example we have on focusing on the trading process of a strategy we know has an edge over the market (just like our Forex Scalping Strategies) :

✅ – Wait for proper trade entry level

✅ – Did you adjust stop loss level

✅ – Did not close out trade early

✅ – Moved stop loss to breakeven at predetermined point

✅ – Did not trade within 15 minutes before and after news

✅ – Closed out all open positions regardless of profit when huge news event is approaching

All the above are focusing on the process, not the result. This is an important distinction because if you did all the above, you would be on track to becoming a successful forex trader because you have a proven trading strategy and you are executing it to perfection. If you did all the above and ended up with a losing trade – it is normal! No strategy is 100% accurate without any losses.

The key here is to simply change your focus from simply this :

✅ – Trade made profit

to the above check points. If you didn’t follow your trading plan at all and your trade made a profit – that is luck and bad trading. It might work once, but it won’t work over the long run. You’re here to make predictable profits based on predictable trading and that requires predictable rules to follow.

There is a tendency for us to stare at charts (or in our case, our Forex Scalping System) too much waiting for the correct entry. Often, this leads to compromised entries as we get impatient or we look for other indicators (which we’ve never used before) to try to justify an earlier entry.

This is extremely dangerous – any habit that causes us to compromise on our entries is.

The key here is to find something to do while you are waiting for your optimum setup. Some people do their ironing, some people read a book or do their daily work and some just watch youtube videos. At the same time, they set a price alert to be sent to their mobile phones so that they know when to return to their charts. Either that, or they set a pending order with their stop loss and take profits in place and leave it to be. 

Contrary to what every investment plan out there tells you, I have to warn everybody not to have a daily target number of pips or account growth to aim for. There should be a maximum you target every day (eg. 20 pips) but definitely not a fixed target which you would not stop trading until you reach.

Why is this so? It’s because when we have a target we’re constantly trying to reach, our brain would come up with ways to try to get that target constantly. Imagine it’s 10pm and you still have not hit your 20 pips target for the day – your brain would try to come up with different strategies, entries and ideas to make you compromise on your entries to get into a trade – this would result in you getting into non-optimal setups and giving you a high chance of losing.

Hence, just take what the market gives you. Don’t try to force something when there’s nothing. When you’ve hit a certain number of pips (eg. 20 pips), it’s not a hard and fast rule, but it’s recommended to take a break and call it a day as research has shown that traders tend to get complacent and have a “God” complex thinking everything they touch is going to turn into gold – and what happens all too often is they give everything back to the market. Have a maximum target, but not a minimum target.

These are the key points you should know about mastering the psychology of trading. Remember, every single part of our human body is designed to be bad at trading, so read, re-read and internalize all these lessons as you go forward from here as you continue your forex trading education into the highly profitable world of scalping the forex market.