When you are a beginner in the forex market, you will be spending a whole lot of time learning and developing your trading skills. In the earlier days, traders were only focused on studying the fundamental concepts and technicalities of trading. They were more concerned about finding the perfect trading platform like MT5, which is packed with advanced features like real-time charting, multiple indicators and more to help traders place traders more smartly. Traders used to believe that trading is a technical process only to find out from several experts later about the psychological aspects of trading and how the mental state and emotions of traders can dictate their decision-making process. Gradually, trading psychology became a topic of discussion in the trading community. So, you should be aware of the various aspects that are connected with trading psychology.
In this digital era, there are a lot of factors that can influence our mindset and thinking. Social media platforms also play a key role in shaping our thoughts and perceptions. Trading psychology of modern traders is also being influenced by social media and this article will educate you about the same so that you can save yourself from the negative impact of social media content.
The Role of Social Media Platforms in Forex Trading
Forex market is very different from any other financial market with its decentralised structure, ease of access and large trading volume. All these peculiar features of the currency market have made it an attractive place for traders seeking flexibility and high-profit potential. The popularity of forex trading was boosted after the launch of user-friendly trading platforms like MT4 as it simplified trading for both, novices as well as experienced traders by providing an intuitive interface and plenty of useful features. However, trading was still seen as a complex activity by a vast majority of the population and they were reluctant to step into the volatile forex market.
But in the last few years, we saw a shift in this perspective as the common population’s interest towards forex trading has been growing and today’s youth are more open to the opportunities offered by various financial markets. Social media platforms are a pool of information about various topics and online traders started sharing valuable insights and updates about how they navigate the dynamic markets. A vast majority of social media users were youth and they were curious about the world of trading. This led to a lot of newcomers joining the trading community to make money from the comfort of their homes.
These days, everyone is active on popular social media platforms like Instagram, Twitter (X), Facebook and YouTube. A lot of online traders and market experts are also there on these sites and they use it for sharing educational content or giving market updates. There are a lot of accounts that you can follow to get the latest updates about key economic data releases and news events that can impact the market. We can see that the availability of the latest information in real-time has made online trading easier as everyone gets the opportunity to learn and have meaningful interactions with other like-minded traders via online platforms and community forums.
Now that we have understood how social media platforms have benefited the trading industry and its role in educating online traders, we need to talk about the negative aspects too. So, let’s have a look at the negative sides of social media and how it can be a bad influence on trading psychology.
- Confirmation Bias and mob mentality
Sometimes, traders have a lot of belief in a particular strategy or trading technique that they only seek out information that confirms their knowledge and pre-set beliefs, ignoring all other facts that may question their thoughts. This is what we refer to as confirmation bias and social media platforms are programmed to keep us hooked by showing content based on our interest. Thus, it can hurt our trading psychology by fueling such cognitive biases.
Mob mentality or herd mentality is the tendency to abandon our own ideas for the sake of remaining part of a larger group or following a popular trend. Traders may compare themselves and their performance with other traders on social media and this leads to a lot of stress and impulsive trading decisions.
- Fear of Missing Out (FOMO)
The fear of missing out on a good opportunity is very common among traders and social media may feed this fear more with all the trading ideas and signals that are shared on various platforms. These trade setups may not even resonate with your strategy but you still feel compelled to try them out due to the fear of losing an opportunity and being left behind.
- Information overload
Social media sites have a constant flow of information all the time and this can be a lot to handle for a trader, especially a beginner. A vast majority of social media content is not even relevant and the mindless scrolling can make us tired and confused. You will feel overwhelmed by the amount of information and overexposure to market noise with contradictory analyses and conflicting opinions that are shared on social media sites.
- Emotional influence
Social media content often makes us mimic the behaviours and thinking patterns of other people and this can happen in trading as well. If you follow influencers and traders who are emotionally attached to their trades and easily panic about a market situation or outcome of a trade, then you may also get worried and engage in emotional trading. This type of emotional contagion can have a negative influence on trading psychology.
These negatives of social media influence can affect your trading performance as you may end up making poor trading decisions. But you can avoid such a situation by following some practical tips that help you to navigate online influences in a better way.
Tips to Manage the Impact of Social Media on Trading Psychology
- Be cautious and selective about whom you trust and follow
The first thing to do to manage the impact of social media on trading psychology is to be cautious and selective about who you trust and follow on social media. There will be a lot of people and accounts claiming to be experts in trading but you should not follow these people blindly just because they have a lot of followers. You need to be a little sceptical about everything that you see on social media. Do your own research to verify the facts and stay away from anyone who guarantees profits, because a genuine trader will never do that while sharing a trade idea or strategy. The same thing applies to analysts and paid courses.
- Stay True to your Trading Plan
Those who have a solid trading plan are less likely to become a victim of confirmation bias or FOMO as they have trust in the potential of their strategy. So, you should be clear about your trading goals, personal trading style, method of analysis, entry and exit strategies along with a sound risk management plan to follow. By following a disciplined approach, you can stop yourself from making impulsive trading decisions.
- Limit your screen time
We can all agree upon the fact that social media platforms have become the number one distraction for most of us. We spend hours scrolling through different apps without realising how much of our precious time is being used up for watching irrelevant content. Hence, you need to limit and reduce your screen time and use it for analysing the market and improving your strategies. You need to avoid the emotional contagion and it will be good to practise a social media detox once in a while.
- Use social media as a learning tool
Most traders rely on social media for getting trading signals and trade ideas which is not the best approach if you are just blindly following someone without doing any research. You need to make trading decisions based on your personal trading goals and risk tolerance. Otherwise, you will end up making costly mistakes while trying to implement another trader’s strategy or trading techniques. Hence, you need to use social media as a learning tool for enhancing your knowledge and upgrading your skills as a trader.
- Emotional Discipline
We cannot avoid social media as a whole while trading. Because it still has a lot of relevant content and updates that are needed for navigating the market. But you need to develop emotional discipline to avoid getting triggered after seeing online content. You need to practise mindfulness and self-awareness to reduce the digital clutter and mind fog that happens due to information overload.
Wrap Up
In a nutshell, social media has both positives and negatives when it comes to influencing our trading psychology. It is impossible to stay away from social media in this digital era but you need to be in control of what you see and how you perceive it. You can use social media as a learning tool but it is important to do some research before making any crucial trading decision.