There is a psychology behind trading. It is about the perceptions change that you go through once you are actively in the markets trading. Trading on a demo account seems easy, but once you have handled your first live trade, indecisiveness close in. understanding the trading psychology will help you get on to trading with the right mindset along with the following the risk management.
Trading psychology and trading psychology issues are the predominant reasons why traders lose. It has been widely discussed in books and lectures that it has been a convenient excuse for losing. What is trading psychology? Trading psychology is an attitude or a reaction that a trader creates from existing personality traits. These personality traits may not be even related to trading or to market, but they surface from trading.
Common emotions brought about by this personality traits are fear and greed. Fear has a big effect on trading opportunities. Deals or trades may not be made because of fear or they may be closed prematurely before they reach or have a chance to profit. Meanwhile, greed will cause you to make trades which are too risky or too large while trying to accumulate gains.
Other emotions you have to check is failure and discipline. Failure is perfectly normal but we should not let this get us down. Failure is expected and should make us better. While, discipline is about sticking to your methods and never deviating from it. There are traders who change their methods if they are having a winning and losing streak.
According to the trading mindset psychology, the reason traders lose it because they are not psychologically prepared for battle or for trade. There are traders that are not prepared to accept financial risk for something of which they have no control over the outcome. When a trader experience consecutive losses, methods becomes replaced with a feeling of despair and hopelessness. Traders would have this feeling that it is impossible to do anything right, in this situation trading psychology is more crucial or critical that the trading method.
They say that trading is 90 percent psychological and 10 percent methodological. Even with
first class trading method, if the trader has no control over their emotions, it would be difficult for them to implement their trading method.
How to combat a troubled trading mindset?
You would have to make a trading plan and stick to it. This plan aims to have an honest assessment and understanding of the trader’s action. You also need to define your trading methodology. You would have to master your emotions in order to seize the profits.
Self- confidence is an important attributes. If you lack confidence then it would show in your deals. Without confidence, you are not likely to trust and follow something that have developed. Successful trading relies on decision making. Because of money and natural instincts, people cannot remove their emotions from their decision making process. You also need to be discipline with your decision making and focusing on the right areas. There are traders who tend to shed much of their energy thinking about the wrong things.
What the market does to you is not important. The market may lose or may profit today, but what is important is how you react to the market. Trading psychology may be made by some losing traders as their excuse, but bottom line is, a healthy trading mindset gives profitable results.