There are many characteristics and skills required of traders to be successful in the financial markets. The ability to understand a currency’s or company’s fundamentals and the ability to determine the direction of an instruments trend are two crucial skills, but neither is as important as the ability to contain your emotions and strict discipline through trading psychology.
What exactly is trading psychology? Trading psychology refers to the mental and emotional aspects that will dictate a trader’s decision and is an important factor in determining the trader’s success or failure in the trading business. Emotions like greed, fear, and regret play important roles in the trading game and unless we as traders can learn to master our psychology failure is an almost certainty.
Greed can lead to an excessive desire for wealth and thus often causes traders to stay in a profitable trade longer than they expected in an effort to squeeze out extra profits from it or add to their positions in the perception to make more money. Traders will also put on large positions on, hoping to make quick money and forgetting about risk management and account perseverance.
Fear, on the other hand, will cause traders to close winning positions early or hold losing positions until their accounts go bust. Fear is a deadly emotion that can cause traders to act irrationally in their haste to exit the market.
Regret may cause a trader to get into a trade after initially missing out on it because the instrument moved too fast. This is a violation of trading discipline and often results in direct losses as price more often than not turns the moment you get into the trade or you get in and will run a few pips then turn around.
Yes, one can learn the technical and fundamental aspect of trading in a matter of months but it is the discipline to stick to your strategy if you are even using one and having the right psychology to keep your winning trade going and cut your losses. For myself, this has been the biggest aspect holding me back from making those millions 😉
If you want to achieve any sort of success in trading forex, stocks, options, crypto, futures, or anything relating to your hard earned cash you need to keep your mindset and psychology in check. I don’t know of a trader that got into the industry thinking they would not be a millionaire in a weeks time. They see all the Forex Insta millionaires or better yet Insta-fakes and think it will be the easiest money they ever made. This is simply just not the case.
One issue I had and I have found is common amongst a lot of newbie traders is that they get focused on the money and not the trade. They think of how much they can make or not make instead of focusing on their strategy. Focus on collecting pips/points and the money will follow.
While our job is to forecast where we think price action will go, another important part of our jobs as traders is not to get tunnel vision on our trades. There will be times when our trades go bang on the money and then there will be times where it pulls our pants down and reminds us that we really are just humans after all.
To avoid unnecessary emotional and psychological pressure, you need to learn to separate yourself from the financial aspect of the trade. When you first start trading and you trade a demo account your feel invincible and seem to profit on every trade. Then when it comes time to trade a real account you seem to get into trades you normally wouldn’t trade, you do not stick to your trading plan and rules and everything goes to rat shit! The reason for this is because you have no emotional connection to the money in the demo account, you purely trade on what you see not what you feel.
What I have started doing is trying to analyze not just one scenario but 2 or 3 scenarios that could happen so mentally I am prepared for any outcome thus not to get emotionally attached to the trade. I still stick to my trading plan however it is always good to plan for the unexpected this enables me to follow market fluctuations using only the system-
trade method and developing a trading strategy providing effective
monitoring of these fluctuations in the market.
The easiest way of solving psychological problems is to abandon attempts
to trade on the basis of greed and fear. Only trade your own analysis and according to your own trading plan and rules. By sticking to this rule and staying disciplined you decrease the psychological pressure on yourself and avoid a lot of mistakes associated with psychological stress.
Dream it, Believe it, Achieve it