Why Forex Trading Can Teach You Valuable Life Lessons
On the face of it, forex trading may seem to be all about crunching numbers and analysing charts to try and make a profit. People are drawn to it because they want to have an extra income source, and there is nothing wrong with that at all. Who doesn’t enjoy having spare cash for nice clothes or holidays, or to build up a nest egg for the future?
However, most traders soon discover that if they are to realise their dream of becoming a profitable trader there is a lot to learn, and not all of it is about facts and figures. Pursuing success in forex trading can teach you wider lessons about life, which can often prove to be just as valuable. Here’s a look at just a few of them.
It teaches you about managed risks
Even before you start live trading, you should already know that forex trading is not about taking risks, but about managing risk. If you enjoy the thrill of uncontrolled risk taking you may as well spend your time and money on gambling.
It is essential that you understand the concept of risk in forex, because with high leverage available, the consequences of an irrational decision can be severe. While high leverage means that the potential rewards are greater, so is the potential risk of incurring losses. In the heat of the moment, we are all human and subject to the temptation of greed.
However, this is a slippery slope that professional forex traders won’t go within a mile of. They never, ever take a gamble in the hope that the dice will fall in their favour, no matter what their instincts are urging them to do. No one is born with a natural ‘gut instinct’ for a good trade, because there is really no such thing.
Experienced traders only ever act on cold logic. This means that they work out the probability of their trade being successful on the basis of fundamental and technical analysis. They spend time understanding which factors influence the movements of the markets and the price of the currency pairs that they trade to identify a suitable entry or exit point.
Before entering a trade, they will have drawn a line that they will not cross, based on how much money they can afford to lose, and are comfortable with losing. This amount will never compromise their ability to pay for life’s essentials.
Furthermore, they will measure the risk they are about to take by studying price charts or by using another form of technical analysis. That measured risk will then be further managed by using a stop loss that will automatically trigger an exit once a predetermined price is reached. In other words, every single step of the way is managed to minimise risk.
There are countless ways that the ability to assess and manage risk can help you in your wider life and career. Knowledge is power as they say, and once you are a seasoned forex trader you will always look before you leap wherever you are and whatever you are doing.
It teaches you self-discipline
As we have seen, successful forex trading is all about keeping ahead of the game, learning about economic events, mastering technical tools, and sticking to your strategy even in the face of temptation. All this takes hard work and self-discipline, which is a very useful quality to develop and something that anyone can learn.
The ability to stick to a routine, keep an eye on detail, plan ahead and not give up when faced with setbacks will help you succeed in any professional job role and achieve your goals. It is also useful for making those big life transitions go well for you, such as buying your first house, changing jobs, or even just booking a holiday.
Even when it comes to our personal lifestyle, self-discipline can help us stick to an exercise regime, a healthy eating plan, or to master a new hobby or skill. This in turn can boost our mental and physical health, leading to better performance at work, more confidence, more energy—you get the picture! It’s a virtuous circle.
It teaches you emotional maturity
We all have emotions that influence our decision making in life, whether we are conscious of them or not. Sometimes this may be inconsequential, but in forex trading it never is. When we place a trade, we are not just putting our money on the line. Our personal wealth is tied up with our status, ego, and our ability to afford our basic needs in life.
Therefore even the most even tempered individual can be prone to powerful emotions such as greed or fear when they are trading. This can lead to decisions that are made under pressure on the spur of the moment, as that basic survival instinct kicks in and the adrenaline is surging around the body.
Professional traders learn how to step aside from any emotions they are experiencing, no matter what is facing them. Panic, excitement, fear or over confidence have no place in forex trading because they encourage you to take unmeasured risks, which as we have seen is not what trading is all about.
Learning to recognise strong emotion and taking a step back from it is a valuable skill in all walks of life. It can help you develop better personal and professional relationships, and make more balanced decisions in your career or other areas.
We can probably all think of a life situation where being overconfident led to a careless mistake, or caused someone we care about to think badly of us. You can probably also think of a time when being too cautious or afraid led you to miss out on doing something you enjoyed. Learning how to manage these emotions can help you get the best out of your life.
It reveals your personal strengths and weaknesses
Related to emotional awareness is self-knowledge. None of us is perfect, and we all have different strengths and weaknesses. In forex trading, your personality type can matter just as much as your technical knowledge.
For example, if you know that you are naturally cautious and hate making decisions under pressure, then long term trading is likely to bring you the most success. On the other hand if you are naturally impatient and quick thinking, then you are likely to thrive when making short term day trades.
Although good emotional management is necessary for forex traders, there is no point fighting against your nature. Admitting your personal strengths and weaknesses can actually be a superpower in all aspects of life, because it naturally helps you to work towards careers and interests that you enjoy, rather than trying to live up to expectations set by others.
It teaches you how to handle failure
All forex traders fail. In fact, to be a profitable trader you only need to be successful in around 50% of your trades, and so you need to learn how to handle losses without becoming too overwhelmed or disheartened. No one likes to admit they are wrong, but sometimes it’s better to cut your losses and learn the lesson.
By looking over your trading journal and analysing the reasons why your trade might not have worked out, you can use your failures as an opportunity to learn and make improvements. This not only helps you be a better trader, but also develops mental resilience that is useful in all walks of life.
It teaches you to be comfortable out of your comfort zone
Forex trading is a game of uncertainty, and always operating within your comfort zone will seriously affect your progress. To make gains, you need to push yourself and always be alert to changes in the market conditions.
This isn’t to say that you should abandon your trading strategy and take uncontrolled risks, but that you should be proactive and dynamic in your approach to trading. This will mean that you are always well placed to identify good trading opportunities, rather than always sticking to a formula when the market conditions have changed.
Stepping out of your comfort zone can also help you live a richer and more rewarding life, no matter what your goals are. Want to travel the world, get back into the dating game or take part in your first triathlon? Use those forex trading superpowers and you will soon be on your way to success!
It teaches you about wider geopolitical issues
To make the best trading decisions, it is important to keep up with geopolitical events that can influence currency prices, such as elections, conflict zones, and natural disasters. This can lead to a deeper understanding of how political and financial leaders shape our society and economy, and how they personally affect your life.
In conclusion, even if it wasn’t your intention, your journey to becoming a forex trader can also lead you to becoming a better informed and well rounded individual. It’s a win-win situation.
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