How to Master Trading Psychology
Trading psychology refers to your state of mind and emotions when you trade. Every trader out there definitely experience to lose money after executing traders based on emotions, mostly fear and greed. It is a mistake that is done by everyone at some point but in order to be a successful trader, one must master trading psychology. Therefore, having a full control over your emotions is critical to your success in trading.
Tips on How to Master Trading Psychology
#1. Discipline
Discipline is the most important tip anyone can give you. It means to stick to your trading plan especially when you are about to go against it. If you break your plan and start trading without it, you will start developing bad habits, like aggressive trading, random exits that will lead you to costly mistakes. Although that your trading strategies will not work there are ways so to adjust them to improve your results. Losses from lack of discipline are far greater than losses from an improve trading strategy.
In order to be develop discipline you need to set your own trading rules and follow them blindly. For example, you need to set a clear stop loss, then trade with the trend of the market, in a high volatile market do not leverage and finally always do your research.
Or course, you should find your way and find new rules that will work for your trading style.
#2. Patience
Trading is all about timing and making the right decision at the right moment. If you know what to buy or sell you should wait until the right time comes, this means that you have an effective strategy. This requires self-control. Winning and losing positions can be held for a long time but if a trader feels impatient they will enter or exit faster. Indeed, one can say that in a world of instant gratification it is hard to be patient however it will save you from loses.
Ensure that you are waiting for a promising setup and that your trades matches all your criteria before entering.
#3. Dealing With Losses
Losses can have a devastating effect on traders. Many traders lose their confidence and other fall into depression. Other they are aggressively trading to cover losses. However, failing to deal with loss will only lead to worse consequences. Of course, a major loss is not easy to handle. However, you should think that losing money in trading is inevitable while even the experienced traders lose money many times the difference is that they know how to control and cope with their loses.
In order to deal with a loss you should see it as a mistake to learn. You need to accept it and move on, but first you should review the situation and identify the reasons of the loss. This will help you in the future to find yourself at a better stage and trade effectively in the future.
#4. Control Over Emotions
Control your emotions is one of the hardest things every trader has to face. Profitable trading requires a strong ability to manage emotions as traders who cannot control strong emotions such as frustration trade on a tilt and trying their best to beat the market. This kind of irrational behavior will destroy your trading account if not quit immediately.
Taking a big loss can affect your emotions, influence your decision-making and make you consider your trading career. Every big win can lead to reckless trading. Therefore it is important to be aware of emotions that you are experiencing while trading. The most common emotions that traders experienced are:
– Fear or losing money
– Fear of missing out on profits
– Greed
– Frustrations
– Pressure especially during high instability
You do not have to completely suppress your emotions. Instead you just have to be aware of your emotions and try to stay as rational as you can when you trade.
#5. Break Your Bad Habits
You shouldn’t make a decisions solely out of habit, bias, gut feeling or external influence. There are traders who blindly follow the opinion of an authority figure or buy stocks that other traders are flocking to. Another negative aspect of psychology is when traders fall victim to their own biases like overconfidence or blindly. Other common biases include the effect and attribution bias. Another bad habit that traders.
Conclusion
Controlling a trading psychology takes time and effort but it is necessary for a successful trading career. By recognizing your psychology and controlling your emotions can avoid destructive or impulsive behavior.
