7 Asset Classes - 16 Trading Platforms - Over 1000 Instruments.
7 Asset Classes - 16 Trading Platforms - Over 1000 Instruments.
An essential component of successful trading is psychology. By the term psychology we refer to the state of mind a trader should have while trading. More specifically, trader psychology deals with
Trading is a highly exciting activity. The trouble is that it is hardly possible to feel excited and make money at the same time! Think of a casino where amateurs celebrate over free drinks, while professional card counters coldly play game after game, folding most of the time and pressing their advantage when the card count gives them a slight edge over the house.
To be a successful trader, you have to develop iron discipline.
These are by no means all the psychological issues – but they are the most common. They usually center on the fact that, for one reason or another, the trader is not following his chosen trading approach or system but wings it, or trades his own emotions, which is a no go. As you see, psychology in trading is vital.
In terms of psychology, your goal is to be on an even keel, so to speak. Your winning and losing trades should not affect you. Of course, we all trade better when we win, but we should strive to maintain an emotional balance regardless of any gains or losses.
The first reason why traders lose may seem obvious, but in reality it stems from long-term social conditioning: the inability to accept loss. Loss generates powerful emotions such as fear, uncertainty, apprehension, and self-doubt, especially with men.
Men are socially conditioned to succeed from the moment they enter the world. They are brought up to become achievers. Influenced by family, friends, education, and career environment, they are encouraged to seek professions as doctors, lawyers, and bankers. Striving to be right, number one, the breadwinner, and the best, always seeking perfectionism. Men are socially conditioned to be family providers. Moreover, various cultural pressures and demands add up to this, and as a result men have an intrinsic fundamental obligation to succeed.
The solution is to take a reality check. Losing is part of the game. The possibility to lose is always there. Bottom line: traders do lose. The how much and how often is what distinguishes great traders from those who will always struggle.
You can learn how to accept losses by re-defining the meaning of loss. If you equate it with failure, it will sooner or later take its toll, but re-defining it will help you move forward, improve your trades and cope with possible losses. Consider losing as positive in the sense that it will improve your next trades. Find something new. Make the mistake a blip on the radar, don’t over-react, and let it come and go with ease.
The second most important trading challenge is the innate human characteristic of patterns.
Here is an example of a trader with a locked-in pattern:
He keeps making the same mistake when trading. When asked to describe the mistake, he will do so in detail. When he is told not to repeat the same mistake again, he says he can’t help it. Although he intellectually knows he should stop making the mistake, he can’t. He keeps repeating it and as a result, repeats his losses over and over again, too.
Getting up and moving is the fastest way to stop a pattern.
It is critical to notice when the pattern is happening and to never let it take hold. Dealing with the loss immediately will help you to achieve this.
If you have 3 trades that look exactly alike and they are all losing trades, it’s imperative that you make it a must to examine them and change your approach. If you don’t, the probability of repeating it and losing again is extremely high.
And above all, never forget that a trader must do whatever it takes to stop.
Finally, the biggest and most dangerous of the three problems is emotion.
When a trader gets over-emotional about a trade at anytime, he can’t think clearly because emotions take control over his common sense. Emotions will cloud judgment, block clear thinking, and therefore prevent the trader from being creative. To sum up, emotions override logical thinking.
This is how you know you’re having an emotional block: you want to trade and also react in a certain way but you simply can’t, and even though you intellectually know what you want to do, you tend to react differently.
Our emotional strengths and peak mindset are shaped by how and what we think. If we generate bad thoughts, they will affect the overall thinking process – but if we input positive thoughts, the output will also be good.
The best way to exclude emotions is to ask the mind a good question. Such questions force the mind to release emotion, as it shifts to finding the answer to that particular question. Also remember this: should you not be able to control what you are doing, the onset of a strong emotional block is likely. In such cases, you will need additional help to release it.
In trading, your biggest enemy is within yourself. Success will only come when you have learned to control your emotions. Edwin Lefèvre’s Reminiscences of a Stock Operator (1923) offers advice that applies even today.
Human nature being what it is, most traders and investors ignore these rules when they start out for the first time. It can be an expensive lesson, though.
Control your emotions and avoid being swept along with the crowd. Make consistent decisions based on sound technical analysis.
Markets change, new opportunities arise and the old ones fade away. Good traders are professional but humble people – this is why they keep learning. Speculators get paid for buying what nobody wants, when nobody wants it, and selling what everybody wants, when everybody wants it. Remember that there is no such thing as a bad trader. On the contrary, there’s only well-trained traders or badly trained traders.
You will be more successful when you learn to control your emotions. These are strong words of advice first offered by trader Edwin Lefevre in his book entitled Reminiscences of a Stock Operator in 1923. This book is well worth a read to any trader.
Be cautious, be cool and be patient! Wait for the right conditions in the market before entering it. Sit tight when you are losing, do not let fear grip you, have courage in your convictions. Detach yourself from your emotions at that point and focus on your trading system. It would also help if you detach yourself from your computer screen! If you have placed your stop loss it is not necessary to be constantly watching the screen! This means that you are unsure of yourself.
Don’t be afraid to let go of a losing position. Do not add to a losing position! It is best to average up not down. So add on winning positions instead of on losing ones! New opportunities will always arise.
The bottom line is that having the right attitude and the right mindset will make you more successful in trading!
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