It's a well known fact that most traders lose money when trading FX markets and the number stands at 95% which is a huge percentage. It's also a fact that when most of these traders get a profit, they can't hold onto and bank early. In most instances, they have the opportunity to stay with a trade which is obviously a good trend but bank early and the reason for this is due to the Forex trading psychology most traders have.

When people enter the Forex market there mostly unaware of the correct psychology and think the idea is to win the majority of the re trades but this is not the aim – most pro traders lose more trades than they win but because they can hold their profits and cut their losses they make big gains. The losing trader however does the following and let's start with how he treats losses

Running Losses

When a trader gets a loss in most instances, he decides to hold it and hope it turns around and refuses to admit that he's wrong. He could take a small loss of course but his ego tells him to run it. It gets bigger and eventually he is forced to take the loss. Depending on when he decides to get out, he either has wiped himself out or is sitting well in the red on his account. He could have got out with a small loss but his psychology prevented him from doing so, this then influences him when he has an open profit.

Cutting Profits and Why Traders Always Make this Fatal Error

When the above trader gets a profit, he feels good and the bigger it gets the more excited he gets. Of course very few trends are one way traffic and the bigger the profit becomes the more open equity dips start to eat into his open profit. So the trader thinks – better take the profit now before it gets away. This trader knows he needs to cover big losses and this is in his mind, so when an open equity dip comes he banks the profit before it gets away and covers some of his loss.

Of course in a good trend that's in motion, the open equity dip is soon recovered and the trend goes back the way the trader thought and makes thousands or tens of thousands and he's not in! The typical losing trader, does not have the courage to look longer term and refuses to let the market breathe in terms of open equity dips. He snatches profits early or jacks his stop inside normal volatility and gets taken out. This trader is so obsessed with protecting his profit when he has one, he creates risk by, getting out to early but on the other hand, in losing trades because he's wrong, he accepts to much risk!

When holding long term trends, you must have the courage to hold and keep your stop outside normal volatility sure, you give a bit back at the end but you don't know when the trend will end so keep your stop back. Most trends run further than most traders think anyway and the big trends can last for weeks, months or even years so don't bank early. You need to run profits to cover your inevitable losses which need to be kept small.

Taking losses quickly and keeping them small, requires discipline and running profits requires courage and confidence in your plan and its a fact, that most traders simply don't have the correct psychology to win.

The Aim of Forex is Making money Not Perfection

Many traders believe the rubbish they read from the vendors of Forex robots and other sure fire systems that making money is easy and you win 90% plus of your trades but this is rubbish. The top traders lose as many or more trades than they win but they know this is just the way Forex markets are and focus on keeping losses small and having the courage to hold long term trends, through open equity dips and accepting them as normal.

Final Words

If you want to make money trading currencies the proper Forex Psychology is vital and its not just about having the discipline to cut losses, its also about having the right mindset to accept big gains and not get out early.

If you want to win with your Forex trading strategy the correct psychology is essential and if you learn it, you will be on the road to currency trading success.