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Lesson 7: Understanding the Mind of a Forex Beginner

By: Terry Allen
FOREX trading is a very complicated business and beginners must proceed with caution if they wish to acquire the confidence and skills necessary to first survive and then profit. Forex experts make significantly higher profits than novices because of their advanced psychology which is based on a more astute understanding of the Forex market’s concepts and features.

In order to obtain a handle on what this all means, let us try to understand a novice’s psychology when faced initially with the enormous subject of Forex Trading. Many of them would have been enticed into this market by all the propaganda and publicity surrounding Forex. As a result, they are unrealistic in their initial objectives believing that Forex is a ‘quick rich’ scheme with the potential for large, easily-acquired profits. Their trading systems are weak and do not cater for that fact that they are not going to profit from all of their trades. They have not grasped the important concept that even the most experienced trader can get it wrong and that the best they can aim for is to make more profitable trades than losing ones.

In addition, beginners have minimum money management appreciation and tend to risk far more than they can afford to lose. They do not understand the significance of trading with less than 2.5% of their
total margin and as a result lose most, if not all, of their money
very quickly. The publicity onslaught convinces them that they will quickly become millionaires by just opening a Forex account today with a few hundred dollars. Even using powerful Forex tools such as robots, they are unaware that they will make nowhere near the profits that experts do.

In reality, only a very few Forex traders are successful. The reasons
why most novices fail are because of one or more of the following factors:

1. They do not have the mental awareness to understand the significance
and importance of Forex demo trading.
2. They expect to make profits from every Forex trade and do not know
how to properly develop a Forex trading system with both a positive
win:loss ratio and expectancy value.
3. They have none or little money management discipline and trade
recklessly as a result using money that they can ill-afford to lose.
4. As their psychology is not robust or disciplined to deal properly
with the Forex market, they let their emotions influence their Forex
trading strategies.
5. They do not properly understand the concept of leverage and risk too
much of their account on single trades.
6. They approach Forex with a gambler’s mindset instead of taking it very seriously and trade in a business-like fashion.
7. They try to make big profits by taking unsubstantiated risks.
8. They start trading with real money before they have perfected a Forex trading system using a demo account.
9. They trade multiple pairs before they are competent in just one pair.

This article is part of a course that is intended to help you overcome these types of problems.

Disclosure: No Positions