Here is a quick example of what makes a trading psychology. What makes the most vital difference between a ‘excellent’ trader and a ‘terrible’ trader? 2 folk may start off with an identical quantity of money, have the same skill base and enter into the same number of trades over the same period. At the end of that time, one may have earned 30 percent more than the other. How is that possible?
It is probable that one could have got too greedy and too fearful, cutting her winning trades small and letting her losses run, while the other had a firm commitment to stick to her strategy irrespective of what, and hence was able to harvest a far larger reward.
When trading, there are 2 vital facts to remember. Firstly , the ‘excellent’ trader respects her proven rules, sticking by them thru the upswings and the down. Second, the ‘terrible’ trader will let her emotions identify when she trades, which will end in inconsistent trading and final failure.
There are 3 ingredients to trading : a trading technique cashflow management and psychology. The reality is, trading psychology is more crucial than the other two factors combined.
What’s psychology? It has been said it is the ‘science that deals with psychological processes and behaviour.’ Feelings such as dread, gluttony, arrogance and pride all influence a person’s trading. The terrible trader will allow her emotions to regulate her. For example, when a trader closes out a position too early or too late, she’s enabling her emotions to manage her behavior. She’s exhibiting loss hatred, where she is strongly preferring to avoid losses to acquiring gains. She sees her trades lose, but continues to let them run, hoping against hope for a turn around. Often this just does not happen, and she loses all she has invested.
Loss dislike is also demonstrated when traders close positions too early. When they see a small profit, they are frightened to lose what they already have, so they close the position out too early.
It’s required to act in a counter intuitive demeanour when trading. Following natural intuition, you would expect to take any tiny profit as quick as you make it. But , this isn’t the way to become a successful trader. The successful trader will act counter intuitively, and let his profits run. In a similar fashion, he will act against his built-in instincts when he sees a loss, and instead of waiting for a turn around, he will cut his losses small.
Discipline is what is at last required in trading. When a disciplined approach is constantly taken, that trader will gain confidence. The trading plot is the key to it all, but the trader must have the wherewithal to follow this plot through thick and thin.
Another trap many new traders fall into is making an attempt to trade multiple markets. This just won’t work. You want to pick one market and one pattern, and again, this is counter intuitive. You should endeavour to beat the one market. Have a trading plot, follow it with discipline, take charge of your feelings and you’ll noticeably raise the probability of becoming a successful trader. You must also find out about trading psychology in the procedure.
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