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Objective and Rational Trading Methods

As a forex trader, it's crucial to trade based on what you see in the market, not what you think about the market. This is the core principle of this article. You might have often heard about avoiding 'greed or fear' in trading. This article will discuss how you should manage emotional involvement when trading, whether you are facing losses or gains.

When confronted with market price movements, the human brain tends to behave primitively with a 'fight or flight' response. This mechanism prevents us from seeing the true potential of the market because we become highly subjective, tending to 'attack, defend, or flee' from the market. To become a consistently profitable trader, we need to maximize the frontal lobe of the brain, which functions to understand problems, analyze, and plan ideas objectively.

Objective Trading Methods

Trading based on what is visible in the market helps you avoid emotional involvement before opening a position, while your position is active, and after closing a trade. Proper trading methods and plans will assist you in overcoming emotional involvement. For example, the price action method involves analyzing price movement patterns to obtain valid trading signals. After opening a position, you let the market work without involving your emotions.

Tips for Objective and Rational Trading

  1. Do Not Predict the Market without a Rational Trading Method: Avoid forecasting market price movements without a rational trading method. Forex market price movements are highly dynamic, and no one can predict their direction with certainty.

  2. Set Risk Levels: Manage the risk each time you open a trading position by setting stop-loss and target levels according to your account balance or equity. As a general guideline, a logical stop-loss (risk) to target profit (reward) ratio is 1:2.

  3. Control Yourself: Avoid getting emotionally involved in trading. The market does not care whether you win or lose, so you should not let emotions influence your trading behavior. Always maintain self-control and remain objective when assessing market conditions.

To be a successful trader who consistently generates profits, it is essential to trade objectively and logically. By avoiding emotional involvement and following rational trading methods, you can improve the consistency and outcomes of your trading in the long term. Adopting this trading perspective allows you to objectively assess market conditions and think logically when applying risk management to your trades.

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