Understanding Yourself when trading Forex
Each person has certain personality traits that make us unique. These traits help, or limit, our progress in life, and especially when trading the forex market. To live a happy and fulfilled life is easier when you know your own personality traits. Trying to understand what makes you tick can be of great help when you know how you will probably react in certain situations and why. Investing on the forex market is one area where knowledge of your different traits can be advantageous. Money makes most people emotional at some stages and knowing beforehand how you probably would react to suddenly losing, or making, a lot of money would help you stay afloat. Money has tremendous influence in the lives of people and the lack of money, or the possibility of increasing your money pushes the buttons of your emotions.
That is why being too emotionally involved is so dangerous when investing. Emotions are what make us human. Emotions help, or limit, our progress through life, but it can be detrimental to your investing success. There are probably many emotions an investor can experience, but the two most common are fear and greed. Fear can make you so cautious that you miss a lot of good investment opportunities, or let you get out of a trade too soon, missing the bigger and more profitable move. Being unsure whether the market will react in the way you hope after interpreting the charts can also make you afraid, because what if the market moves the other way? The flip side of fear is greed. And in my mind it is more dangerous than fear. Fear sometimes keeps you out of the market, but greed pushes you into the market as much as possible. Greed affects most people and lets you ignore the warnings. Greed can make you over-optimistic. Believing that the next move will make you rich, increasing the amount of money invested. Greed let you live in a dream world that could make you impatient when profits do not come quickly enough, and this could quickly turn into a nightmare.
Personality traits differ from person to person and for this reason each investor must learn to understand him self or her self. Some people struggling more with making final decisions than others. Struggling with making a decision can cause you to lose a lot of money. The market is always dynamic, always moving, so while the investor is struggling with making decisions the market situation could have changed. The danger of this trait is that this is a way of life for people struggling with it. Struggling to make fast decision affects the whole life of this person. This makes it more difficult when investing since emotions and money are included in the equation. Wondering when to enter or exit the forex market can cause missing opportunities and these mistakes can intensify other emotions like fear or regret.
Some people or very conscientious are being defined as a person who is very meticulous and painstakingly accurate. These persons could be the opposite of the above. Being very sure of there decision since they research it so thoroughly. They would give extraordinary attention to certain details and sometimes checking and rechecking their findings just to make sure. In some areas of life this trait could be beneficial, but when investing it could hamper your success. By the time the investor has checked all his findings the forex market could have moved on, leaving him without the opportunity to enter, or exit the trade at a decent level. The forex market cannot be predicted. Technical and fundamental analysis could only give an indication of the possible direction the market could take in the near future, but there is no guarantee. Spending too much time on research trying to be “absolutely correct” could cause you to react far to late.
Some people are more Open than others. I like to define openness as being able to absorbed changing situations and make corrections in your reactions based on the new information. This could be one of the more positive traits for an investor to acquire. History does repeat itself, but not always in the same manner or under the same situations. Being able to change your outlook when situations change drastically could be advantageous to investing. This does not mean that you alter your investment strategy completely every few months. It rather means that you always make small adjustments when it becomes apparent that there could be some flaws in you investment strategy in regard to the current market situations. Some strategies work better in certain market situations than others. Being open could help you to notice this and make adjustments in time. Openness can also help you to absorb all the viewpoints regarding a share or its possible future and selecting the facts from the fiction, sometimes causing you to avoid a possible investment that appeared good after some warning regarding the company.
Self-discipline is also a trait that could be positive when investing on the market. Investing is something that could be learned, but like all learned behavior it takes time and practice to reach a level of success. Learning something new means getting to grips with failing. Most people do not have a natural tendency to mastering a new concept, like learning to invest on the stock market. It takes time and it means making mistakes. Self-discipline can help you to stick to learning when it appears as if it is not working. Also, discipline is extremely good at helping to curb the effect of emotions. Being disciplined helps you to avoid making irrational decision based on your current emotional state. Self-discipline also helps you to stay patient. I read somewhere that patient money makes money.
So, understanding yourself; knowing your strengths and weaknesses can help you when investing, but what can you do to limit the negatives of your weakness and enhancing the strengths? I believe by designing a good and robust system. If you are someone who is open and willing to integrate new ideas, then designing a robust system could be easier that someone being very set in his ways. A robust system is one that helps you to identify good entry and exit points, which is determined by a balanced blend of technical and fundamental analysis and combined with effective money management techniques.
Finding a good system that complements your personality and sticking to it can advance your success on the market. A good system you trust helps curb the effects of emotions and indecision. Following the system removes some uncertainty. Knowing that most systems are incorrect about 40%-60% of the time helps you to understand that losses are part of the game. Having self-discipline will help in following your system through these inevitable losses. Having good money management, reducing the amount of money to risk and using a good stop-loss system, could help you weather these losses while waiting for the bigger profits. Being disciplined helps to reduce the possibility of greed or fear causing you to be irrational. Knowing yourself, knowing your system and trusting in the positives of both could help you reaching your goal.
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