Psychology Behind Following a Forex Trading System
Many trading systems have been developed that can give a disciplined trader a decent return when trading forex. Nevertheless, the key to success when trading a forex system is to learn to follow the rules that you have devised.
Following your system with the necessary discipline can not only allow you to manage your trading activities but can also help you control your emotional responses.
In essence, if you have not taken the time to develop and write down an objective trading plan that you can follow, you will have a much more difficult time achieving a consistent profit in your trading business.
On the other hand, once a good trading system has been developed and the discipline to follow it achieved, the road to success as a forex trader has been cleared for the trader to follow.
Some of the most important suggestions to practice and keep in mind when following your trading system include the following:
1) Treat your trading system like a respected business partner and follow all of its trading suggestions closely. Do not second guess your trading system.
2) Manage your trading risk consistently by having stop loss orders placed in the market as soon as each trading position is opened.
3) Never take a position based on influences outside your trading system like something you have read or a trading recommendation you have received from someone you have spoken to.
4) Keep your trading system simple. Avoid having too many systems operating at the same time or trading too many instruments since this can significantly degrade your ability to follow any of them accurately when trading.
5) Write down an analysis of what happened every time you stray from your system in your trading journal, and aim to avoid such lapses of discipline in future.
6) Follow your money management strategy carefully. Consider using calculations that can more objectively determine each trade’s position sizing. To determine the volume of your orders correctly, you can use our pip, risk and position sizing calculators .
Perhaps the most significant error that a trader can make is to not follow the rules that they have set for themselves to manage their trading activities.
This loss of trading discipline can have disastrous results for your trading business and should be rigorously avoided.
Overall, far too many traders who have now given up their forex trading businesses have taken what could have been a profitable trading system and turned it into a losing system by stepping outside their systems’ rules too often.
Some of the common trading errors that arise from failing to follow a trading system are:
- Not Entering a Signaled Trade
- Entering Trades Based on External Factors
- Not Placing Stop-Loss Orders
- Not Closing a Trade when there is a clear exit signal
- Trading Too Many Systems
Taking Too Much Risk