Understanding Trading Psychology and Investor’s Behavior

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Most forex traders are stuck in the trading psychology loop; they have everything else working for them but they fail to understand how to manage their trading psychology and behavior. As an investor in the forex market, there is that time in your trading journey where you need to sit down to study and understand yourself.

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In this article, we are going to look at 10 things that will help you better understand and manage your trading psychology in the financial market.

What is trading psychology?

Two things defines your psychology in trading; your emotion and your mental state. This two will combine to dictates your success and failure in the financial market. When I started trading newly, I battled with my emotions to open and close my trading positions.

Sometimes, I will close a trade in lose out of fear, but will find out an hour later that the trades plays out according to my analysis, other times, I will close with a small profit, then boom, I will see the market moving massively on the direction of my analysis.

Managing your emotions and thinking quickly is very important in trading; there are some movement that happen very fast and you need to keep your emotion in check to monitor and take advantage of the move; there are others that can take hours or even days and you need to also keep your emotion in check so that you will not just jump into the market too early.

Here are 10 things that will help you better understand and manage your psychology in the financial market.

1. Know yourself

The first thing you have to overcome in trading is the battle against yourself. You need to understand how your brain works, how to calm your nerve when a trade is not in the direction of your analysis. For instance, if you sweat every time a trade you took is dancing, then you have to re-think your trading concept.

2.  Hoping the market will reverse

I battle this part very early in my trading journey and I paid dearly for it. Most traders when they take a trade and it’s run in loses, they will adjust their stop loss and hope that the market will reverse at some point and put them in profit, if it’s doesn’t they will keep adjusting until they have a margin call.

You have to take trading as an investment, do your analysis, put your stop loss and take profit and allow the trade to play out.

3. Feel Comfortable with your strategy

Don’t trade if you don’t have a strategy, you will keep struggling in the market. One thing that will help your trading psychology is, if you have a strategy that you are comfortable with. So work on developing a guide that will help you take better decision in the market, back test the strategy, feel good about and use it in your real account.

4. Know your Risk Level

Trading is risky, you need to know your risk level and implement a good risk management strategy to manage it. A good risk management strategy will guide you against changing your strategy without any good reasons.

5. Losing is part of trading

Jumping from one strategy to another because of ‘one or two red’ is common with most struggling forex traders. As a trader, you need to know that losing is part of trading. Your analysis won’t work all the time, because of so many factors, from liquidity gap to market manipulations, that’s while risk management is good. Take losing as a learning process, don’t beat yourself every successful forex traders lose trade.

6. Making Money in Forex requires hard work

This is very important, if you want to understand forex and make money from it, you need to spend more time on the chart than how you are doing now. You can’t be spending just 10 minutes on chart and hope to become a guru on forex.

My forex fortune change, the day I started studying the chart at least 1 to 2 hours daily, marking some key-points and monitoring price action reactions at those point, etc.,

7. Put your Ego aside

I have engaged with traders who blow their forex account because of ego. If you don’t know, please try and learn. If you make few quick win, don’t be too greedy and double your risk in the market with the hope of cashing out big. Your ego can mar you in the market, so put it in check.

8. Diversify your risk

There is currency pairs, synthetic indices and others, don’t just trade one pair, make it two or three, so that when there are no opportunities in one market you switch to the next.

9. Discipline is very Vital in Trading

Above all, discipline is the number one attribute of every successful trader. You have to be patient enough to wait for trade set ups and be patient enough to watch it plays out.

10. Have a Trading Plan

Successful trading is not about making quick money once, it about making consistent profit. You need to develop a trading plan that will help you to make consistent profit daily. This is what will make you a successful forex trader.

Final Thoughts on Trading Psychology

Begin the morning with a good trading routine, study the chart, draw your key points and place trades based on your trading strategy, then manage your risk effectively.


Deriv offers complex derivatives, such as options and contracts for difference (“CFDs”). These products may not be suitable for all clients, and trading them puts you at risk. Please make sure that you understand the following risks before trading Deriv products: a) you may lose some or all of the money you invest in the trade, b) if your trade involves currency conversion, exchange rates will affect your profit and loss. You should never trade with borrowed money or with money that you cannot afford to lose.

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