One of the most common causes of a mental breakdown when trading forex is a problem with one's mindset and thinking. Beginners, in particular, are more likely to experience a mental breakdown, but it can also happen to professional traders. Once a mental breakdown occurs, it can cause damage both mentally and financially. One bad trade can lead to the loss of most of your account funds.
Causes of a mental breakdown
Mental breakdowns caused by forex trading are the result of accumulated stress. Unpredictable and ever-changing financial markets put a lot of pressure on forex traders. When traders can no longer handle the stress, they ignore their risk management plans, which can turn into significant losses.
Many traders have unrealistic expectations and a lack of proper understanding of what forex trading is all about. They think only about making a profit and not about losses. The focus of forex trading should be on how to limit losses rather than making profits on every trade. Running away from the fear of loss leads to increased stress. Losses are part of trading and are a necessary expense.
Advice to prevent forex mental breakdown
1. Reduce time spent watching the market
When you spend a lot of time looking at charts, you are at the mercy of the market's ups and downs, and your judgment can become clouded. Watching the market too much can lead you to make spur-of-the-moment trades that were not part of your original trading plan. In addition, a lack of confidence in your judgment may cause you to miss your entry point. Also, it can be harder to cut your losses and let unrealized losses accumulate. One to two hours a day spent looking at charts is sufficient.
2. Take care of your health
Many individual traders trade without knowing the relationship between health and forex trading, but there is a direct link. Trading when you are not feeling well or when you are frustrated, will often lead to bad results. It is difficult making decisions when feeling under pressure.
3. Simplify your trading strategy
Having multiple indicators displayed on your chart may give the impression that you are skilled in market analysis and know the market well. In reality, however, this might not be the case. The more indicators you display, the more confusion you will have about your trading decisions, the more losses can incur, and the more stress. Limit the number of indicators to two at most. A single moving average is enough to analyse the market and accumulate profits.
4. Take regular breaks
Immediately take a break if you lose concentration while trading. Only start trading when you are well-rested. If you need a break, do not worry about missed trading opportunities, trading opportunities will come around again. Avoiding unnecessary losses is also a trading decision. It is a skill required of traders to know their physical condition and mood and to prevent mental breakdowns.
5. Be prepared for stress
Forex trading is stressful. It is natural because there is a chance of losing your money. Many traders lose their ability to make correct decisions as losses increases. While holding a position, you are under the stress of taking on risk, so try not to watch the charts with an impatient mentality. Prevent mental breakdowns by taking regular breaks and practicing your stress-relieving methods to maintain a calm state at all times.