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Forex Trading Mentality – Money Management

In the Forex Trading, having the right mental attitude, can make the difference between winning a trade or losing a trade. For this reason, is “vital” to have and develop a “ Forex Trading Mentality ”. If you have ever wondered about how the most successful traders, were (And still are) able to manage their money and their Trading Activity in a so successful way, well, now you have the answer: their mentality towards the Trading.

Let’s analyze closer this “ Forex Trading Mentality ”. We can divide it into three different parts:

1) The Psychological part.

2) The Emotional part.

3) The Rational part.

Rational Part

 

As stated in the previous articles, a Trader should be able to “switch off” his/her emotional side during his/her Trading Activity. In this way, the Trader will be able to maximize the profits and to reduce the losses. Because emotions and feelings, are the worst enemy of a Trader.

Therefore a Trader, should always act in a rational and logic way. How can a Trader always act in a rational and logic way? Simple. The trader must have a set of rules to follow (That need to be well planned and organized). Of course, these rules have to be respected by the Trader.

This set of rules, that we can call it “Money Management” and “Trading Plan”, are essential for the success (Specially in the long-term) of a Trader. In fact, if a Trader knows that when it happens A the Trader have to do B, he/she has just to follow this simple rule. In this case the Trader doesn’t even need to think twice about it. For example, if the Trader has set a stop loss, he/she perfectly knows that if the stop loss would be reached by the prices, then he/she has to sell the position. It is very important, that you prepare in the best way possible, your Trading Plan and your Money Management Plan. You should take one or two days, to think about them: you have to be sure, that the rules that you will set, are logical and rational.

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Because it may happen, that in a certain situation you would not feel “so sure” and you would probably have some doubts about your rules. Thus when you will need to apply these rules (I.E. : Stop loss reached), you just have to remember “Hey, I have to follow the rules. Because I had spent a lot of time to create these rules, and are the most rational things to do. I have even tested these rules: therefore I’m not afraid to follow them”. Repeating this thought every time that you are afraid to follow your set of rules, could be of help.

Another advice: you should have a “Trading Diary”. What is a Trading Diary? A new kind of book? No, it is just a Diary on which you have to mark, every day: how many trades you have done, how much money you have invested for each trade and the profits/losses. We would suggest you, to write also the why you have decided to open a position. Then, every week you should check the Diary: in this way you would be able to analyze your past performance and to understand your mistakes and how you can improve your Trading System or your Money Management Plan.

Whereas, we can give you some advice about your Money Management Plan. Your Money Management Plan, will be based on the amount of money that you want to invest in the Forex Trading. Because a Money Management Plan for a Trading account of $/EUR 1000, is pretty different from a Money Management Plan for a Trading account of $/EUR 10.000. Here we can give you an advice: the sum of money that you want to invest in the Forex Trading, should be an amount of money that you can afford to lose. We are not saying that you wouldn’t be a successful Trader or at least to be able to make some profits: but you have always to consider the worst case possible, to be prepared if it will ever happen.

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In your Money Management Plan, you should decide how much money you want to invest for every trade and how many positions you want open every week/month (Or at least to set a limit of positions that you can have opened at the same time). As stated before, this depend on your amount of money dedicated to Trading and on how much time you can spend for the Trading. A general rule, is to invest up to the 2-3% of the total amount, for each trade (Or even up to the 5%).

Remember that you can change your Money Management Plan when you want: that’s why we have suggested to you, to have a Trading Diary. If you are not satisfied with your past performance, you may think to change your Plan and so forth. The important thing, is that you have a Money Management Plan: without it, you would blow your account in less than a week.

But you would blow your account in less than a week (Or probably month), if you don’t have a Trading Plan (Or Trading System) too. You have to create your personal strategy, that you will follow to open/close a position and to set the Stop loss/ Take Profits level for each trade. To be able to create your own strategy, you need to have all the tools and knowledge useful to operate in the markets. You have to know how to read a chart, what is the technical analysis and all the related patterns, the fundamental analysis, how to interpret the financial news and so on.

Conclusions

 

We suggest you to take a look to our educational section, that is one of the largest that you will ever find on Internet: we cover the vast majority of topics related to Technical Analysis (Such as Oscilaltor, Indicators and Patterns), to charts and Candlesticks Patterns.

Lastly, you should also check other websites and forums too: in this way, you will be able to gather all the information that you need to create a proper trading System. Or you can simply copy and then modify one of the System that you will find on a Forum or Website. But in this case, be sure that the Trading System was tested and that the users say that is a good and trustworthy Trading System.

The Trading Online Guide, strategy to earn with Binary option and Forex Trading online.