Hello Forex traders,
When trading, did you ever analyze what your own strengths and weaknesses in forex?
This is a vital step in becoming and/or remaining a successful Forex trader. All Forex traders must establish what their key personality strengths and weaknesses as to maximize the impact of their strengths and minimize the potential damage of their weaknesses.
This process is always different for every single Forex trader on earth, simply because each person has their own character, characteristics, experience, psychology, etc and good advice for one Forex trader could be mediocre advice for another. Let’s start with explaining why this process is important and defining trader personality traits.
THE BIGGER PICTURE
Recognizing one’s own trading psychology and aligning it with other key trading components such as one’s own trading method, trading strategies, trade management, risk management, money management, and the overall trading plan is crucial. Whoever finds this delicate balance, will make profits.
Remember, Forex trading is not about being correct and making winning trades. That is important when working as an employee for a company or when doing an exam for school. Forex trading is different. In this business, nobody cares if you were right or wrong. The only one who does care is you.
And at the end of the day, the win percentage will not determine a trader’s success in trading. It’s all about profitability. To be able to make profits, it’s important to have the willingness to risk and have a coherent, clear, simple, and executable trading plan which creates and sustains an edge.
If the trading plan is the real tool that creates the edge, then, to become profitable, our success rate should be measured via the correct implementation of the trading plan. And it is the successful implementation of that plan which keeps the Forex trader focused on the sustainable edge.
In order for any Forex trader to create a trading plan with an edge, one must create a balance between all the various components of such a plan (as mentioned above trading strategy, risk management, money management, trading psychology, trade management).
All of these components must be aligned and in sync to succeed. Here are a few examples:
1) Your trading strategy and trading tools must be supported by your trading psychology
2) Your risk management should be aligned with your trading strategy
3) Your trading psychology should be able to support your trade management plan
There must be a harmony among these items for making and maximizing profit. Any mismatch between these elements will lead to disequilibrium. Trading psychology is one component of the overall trading plan, and this is where knowing thyself becomes important.
In our trading room, we discuss many of these items on a regular basis. Check out this link to understand why a trading room is so vital in the development of a Forex trader.
FOREX TRADER’S SWOT ANALYSIS
Establishing one’s own strengths and weaknesses are therefore very important in order to make a coherent and sustainable trading plan. One method of establishing one’s own strength and weaknesses is by using a SWOT analysis (or SWOT matrix). This is a “structured planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture … [and this] can be carried out for a product, place, industry or person.” It entails “specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective” (source via this link).
Here are the SWOT analysis examples:
- Strengths (internal factors): characteristics of the business or project that give it an advantage over others.
- Weaknesses (internal factors): characteristics that place the team at a disadvantage relative to others
- Opportunities (external factors): elements that the project could exploit to its advantage
- Threats (external factors): elements in the environment that could cause trouble for the business or project
One way of utilizing the SWOT is matching and converting.
1) Matching is used to find competitive advantage by matching the strengths to opportunities.
2) Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities (or otherwise try to minimize or avoid them).
Forex trading is a business and thus Forex traders, as the owners of their own Forex trading enterprise, should complete this process to map out their own strengths and weaknesses in the field of trading in general and trading psychology specifically, and critically review it together with the other components of the trading plan.
STRENGTHS AND WEAKNESSES IN FOREX
Forex traders usually have certain emotions that hinder their trading success. Most Forex traders have issues with greed, fear, need, regret and/or false hope, for instance. These emotions during trading and undermine the profit potential of any trader. Why? Because emotions hinder the correct implementation of one’s trading plan.
What create these emotions? At the end of the day, it is a trader’s strengths and weaknesses in forex which lead to these emotions. Impatience might lead to greed. Lack of discipline could lead to (false) hope.
Our task as a trader is to recognize our own strengths and weaknesses and identify where and when these could play out and have an impact on trading decisions.
Most people have certain characteristics that are predominate. One method of analyzing this is the “four color personality test”, which determines how best to address “each personality with the goal of creating a harmonious and productive environment” (source via this link). Most of us have a bit of all the color type. Not many of us have only 1 color. But most do have a predominant color and a second color type. Check out this link to read more about these various types.
1) Yellow personality is regarded as the “sunniest personality”. They fear rejection most. Tend to be optimists, enthusiasts, verbally articulate. They like freedom, friendliness, positive reinforcement. They are weak in following through, act impulsively, overestimate results, etc.
2) Red personality is regarded as the “dominating personality”. They fear failure. Tend to be persistent, problem solvers, taking charge, accepting challenges. They like new varied activities, control, direct answers, and difficult assignments. They are weak in impatience, over risking, inflexible.
3) Green personality is regarded as the “calm personality”. They fear the lack of harmony. They tend to be supportive, agreeable, loyal, and consistent. They like minimal conflict, security, acknowledgment, opportunity to develop personal relationships. They are weak in change, initiative, overly lenient, indecisive.
4) Blue personality is regarded as the “perfectionist personality”. They fear criticism. They tend to be orderly, disciplined and precise, diplomatic, analytical, thorough. They like detail, exact job descriptions, sufficient time to do things right. They are weak in addressing controversy, indecisiveness, hesitant, accepting criticism.
Forex traders need to find out their personality type and compose a forex trader’s SWOT analysis to find out how this can impact the implementation of their Forex trading plan. Take some time to explore your personality strengths and weaknesses in forex trading.