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The Importance of Managing Your Forex Trading Expectations
When you are trading on the forex market, there are lots of factors to consider and lessons to learn. From keeping an eye on what the market is doing to keeping a trading journal and settling on a trading strategy, you will have lots to keep you busy.
One vital area to focus on though is managing expectations.
What is managing expectation in forex about?
As in life, trading on the forex market will see you anticipating what will happen and expecting situations to pan out how you predict. This brings a level of expectation to each forex trade that needs managing. If you don't pay attention to this part of trading, then you are at the mercy of your emotions.
Why is this so essential?
Trading emotions are the enemy of all successful forex traders. They will make you want to give up when a trade doesn't go the way you thought it would or rush back into the market when a trade works out. Our emotional response to a situation is usually based on what we expected to happen in the context of the environment at the time. When it works out we feel good, when it doesn't we feel bad.
Forex trading and emotional discipline
So how does this apply to forex trading? Completely removing expectations and avoiding mental distress or pain altogether is equally not the answer.
This avoidance of emotional pain in trading can play havoc with your whole trading career in a short space of time. The reason is that our mind needs to feel as though something is of importance or at stake to be able to trade successfully, meaning a degree of expectation is necessary, sounds contradictory but there is somewhere in the middle, the happy medium as such.
Everyone has expectations - learn to manage them
Expectations are a natural part of being human that you simply cannot get rid of. The key to them with forex trading is managing them successfully. One of the main things to understand is to not set unrealistic expectations around your trades. Using unrealistic expectations as a trading strategy could bring major pips each time into your account but is actually very unlikely to work successfully long term. Over time, the chances are you will lose most of your trades and begin to feel frustrated or upset.
When this happens you may even give up trading altogether! All this could be avoided by simply having more realistic expectations to begin with and also admitting when your strategy is not working out as you thought it would.
Another classic example around expectation management is hanging onto a losing trade. All the signs are there that you should get out but you ignore them. Sometimes, you might even look for non-existent signals that your original expectations were still correct! You simply find it too painful to admit your original expectations on the trade were wrong and so you carry on losing money. In this situation, it's better to cut your losses and focus on planning your next position. You will not be successful 100% of the time, even the best of the best traders don't have this success rate but as long as you are cutting your losses short and taking profit on your successful trades you will put yourself in a much better position for consistent gains.
Just to round this article up, you will always have to deal with your expectations and the emotions that they bring with them. Learning to manage them in a way that allows you to trade without emotion and also accept the hard facts of what the markets are doing is key to overall trading success.
It is not wrong to see a trade go the other way than you thought it would. However, it is poor trading to be a prisoner of your expectations and let this stop you from doing what you need too. Never be afraid to make a loss, it's part of the process and don't get greedy, if you have a profit goal and you've achieved it, take the profit and look for the next opportunity.
Trading is psychological, manage your mind and your expectation and you will put yourself in a good route to becoming a profitable trader.