The Psychology Of Trading The Markets

The psychology of trading the markets is something that very few people really take into account when they take up trading the financial markets. But it is actually a crucial skill to learn, and can be the difference between you being a quite clueless trader to a highly successful one.

All the really top traders know about the psychology of trading the markets, because they have been through the school of hard knocks and come out the other side still living. It goes with the territory of trading that you will often start very well, make some excellent profits, then all of a sudden, although you seem to be doing nothing different, you have a terrible run and are at risk of losing the shirt off your back!

And this is because trading the financial markets is not an exact science. Some days your system, if you have one, will win, and sometimes it will lose. The key is to make sure that when you do lose you keep your losses to minimum, and when you win you win with a healthy profit. This all sounds rather easy in cold print, after all, the markets can only go up or down can`t they?

It is not so easy because although in one day the GBP/USD will go down for instance, it does not go down in a steady line but goes down in a swinging fashion. So if you have a stop loss that is too tight you can get stopped out, or if your stop loss is too loose you run the risk of the trade turning and leaving you heavily out of pocket.

So you need to work out your level of risk carefully on each trade you embark upon, calculate your profit to loss ratio, work out how much of your starting bank you can afford to lose in one trade, and then trade accordingly. You must keep a clear head at all times and keep a tight rein on your emotions.

If you have set up a trade and it starts going against you, you must under no circumstances move your stop loss further away so as to stay in the trade as this is a recipe to disaster!! If you know anything about the psychology of trading the markets you will know that people will often do anything to avoid a losing trade, including moving their stop loss around 10 times until they finally run out of both the will to live and their money!

A huge part of trading psychology is knowing how to deal with the inevitable losses that come your way. You must learn to deal with them in a logical and rational way and wait for the next opportunity to trade. Incidentally, the worst thing you can do after a bad losing trade is dive straight into the markets again and trade. You are being impulsive and rash, and you must only trade when you are in a calm and even mood.

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Who Else Wouldn’t Trade Forex After the US Markets Open?

Sometimes I think that some traders are quite lucky to live in the UK! And not just because of the Queen and Big Ben (one might think so)… No. Their UK living allows them to trade Forex at the most profitable times of the day. When they get up and have “traditional” morning cup of a tea, their FX trading starts at 8.00 (GMT +1:00) and later around 10.00 or 11.00. When it’s 14.30 on the UK clocks and watches the US markets open. But their job is actually done by then. With the fourth tea cup emptied and all lunch sandwiches eaten they start caring for own stocks. So… is worth trading FX after the US markets open?
My personal opinion – it’s not the best idea for several reasons. I’ll try to make them short:
The high market volume and volatility will “die” as soon as European markets close (a few hours after the US session starts). If you haven’t already closed your positions for the day, you will definitely get your portion of frustration.The start of the American session often brings us, the traders, an armload of major news releases (14.45-15.00 in the UK). We know they can push markets easily as Schwarzenegger pushes trains and planes when being angry.  However, those releases can cause the dramatic market movement, so all of your technical analysis (if you made any by then) would turn useless. Unless you are a trading pro, it is even harder to make your money in such conditions.The US-session market tends to become as calm and “stable” as a cemetery in the end. All big market moves for the day have already occurred. Last few hours of European markets trading within the US session are usually not generous with breakouts, for instance. Even if you get some, there could possibly be no “to be continued…” afterwards.
Summarizing, I want to say that there are still times when trading the US markets is profitable.
Firstly, if you are the News trader. Download and use for free Forex freebie called FX Pulse. FX Pulse is a MT4 custom indicator that shows actual Forex news directly on chart in a second after its release. So you are waiting for the US session to start with your eyes burning fire and hands shaking with excitement (do you really?!). Such reports as NFP or FOMC can make price rocket in seconds as well as can drop it down to earth.
Another way of benefiting with the US markets open is the usage of certain time frames.
Even though most of my trades, which I place with my trading strategy, occur in the morning, I usually place a trade in the afternoon and evening. Not just for the interest sake, but whether a significant EMA crossover occurs in the time. If my profit targets have been reached, I will close the trades opened before.
As a conclusion, I would say that trading the FX market after the US session opens is not really worth it. If you are not the News trader and you are dealing with short term charts. Your trading window is narrow, and those are the market moving announcements that you have to deal with.
Although if you are using one-hour or four-hour charts, for instance, then trading during this time can be worthy as price will often continue moving for the rest of the day and (lower volume expected) into the next one.
Article provided by Alexander Collins, creator of automated Forex trading software that works since 2007 and have positive backtest and forward test results.

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