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Trading Psychology

Psychology of Forex trading. Human factor and its importance

Before starting this section on psychology it should be noted that the author of this course is a system analyst, i.e. shares the opinion that trading is the work of mechanic trading systems (refer to Section 6 of this course). However, the author strongly recommend that everyone, including future system analysts, should read this section because “human factor” is part of all or almost all processes that should not be excluded from consideration. What’s more, ignoring trading psychology would border on criminal negligence. The thing is that, eventually, it is a human who trades, even if operations are performed by a robot. But it is a human who has opened an account and installed this particular robot. He/she has allowed the robot to trade at exactly this time. He/she has installed these particular settings and can interfere with robot’s work etc. Finally, at a certain point in time a human can withdraw too much money from the account which blocks the robot’s work. Therefore, it is quite desirable to be at least aware of the main psychological aspects of trading, if not studying them in depth.

The second note we should make is related to psychotherapy. When a person experiences dissonance between what he/she would like to feel (in the most general sense of this word) and what he/she actually feels as well as between how he/she would like to behave (in any situation or sphere of life) and how he/she actually behaves, he/she arranges an appointment with a psychotherapist. There are lots of opinions, gossips, wild guesses and fantasies about the process of psychotherapy itself. There are also lots of schools and movements of psychotherapy. We are not going to discuss all of these. It is important to understand what the most general and the most important objective of psychotherapy is (regardless of movements or methods used by a specialist). This objective can be formulated as follows: to help a person realize what and why is happening to him/her in order to enable him/her to make an informed choice of what should be done.

We will establish a similar objective for this course. We believe a trader should know (or at least be aware of) psychological factors driving him in order to be able to make informed choices as to whether to resist or, conversely, make use of them.

There are dozens of fundamental and hundreds of popular scientific books about trading and trader’s psychology. However, we believe this subject has not been elaborated yet in depth. Then again, we cannot expect this subject to be “sufficiently” elaborated any time soon for a simple reason of it being related to human psyche which is far from being thoroughly studied. It is hardly possible to provide enough information in this article about at least main ideas developed by psychologists in cooperation with practicing traders, that’s why we can only refer you to those sources that are related to this topic.

In our course, we will be able to outline typical challenges facing traders and propose some solutions.