Psychology In Trading

An effective trading strategy and proper money management are the fundamentals of trading. Something without which profitable trading is impossible. Underestimating the importance of psychology is a common mistake most novice traders make. The market does not like emotions. A successful trader must be able to control himself and his fear.

Psychology is on the first place in the hierarchy of importance, strategy – on the second. Regardless of the trading system used, a trader cannot achieve stable profits until he learns to control his emotions.

Fear And Excitement

These emotional components are present in every trader. But at the same time it is fear and excitement that are the main obstacle in a trader’s way to success. We must learn to control these emotions so that they do not have a significant impact on the real actions.

As for the sense of excitement – it is absolutely unacceptable and harmful to almost any business, especially to trading. An effective remedy against excitement is the development of an individual trading system, and the strict observance of its rules (here you will need to apply willpower).

A sense of fear requires a separate consideration. It is impossible to get rid of it completely, and it is unnecessary, because it is a natural protection of human safety. However, one should not allow doubts and reasonable fears to transform into a feeling of panic. There is a technique that allows one to significantly reduce the psychological tension associated with the obsessive fear of failure and loss of money. We will tell you about it below.

When opening a deal, both positive and negative scenarios should be envisaged. Losses are an integral part of trading, so they should be treated accordingly. It is important psychologically and emotionally to be ready to close the deal with a loss. And we are not talking about the anxious expectation of failure at opening each order, because such behavior is wrong.

The general meaning of successful trading formula can be expressed by a popular proverb – “hope for the best, prepare for the worst”. In this case it can be appropriately supplemented: hope alone is not enough, a trader must do everything possible to achieve the “best”, but at the same time he must carefully prepare for the “worst” (the transaction closing with a loss).

When opening an order, a trader must immediately set the limiters: Take Profit, which limits the profit, and Stop Loss, which fixes the loss. According to statistics, all profitable traders place take profit limit 3 times farther than stop loss. This allows one profitable trade to cover three losing trades.

Conclusion

Neither high profit nor loss should not take trader out of the psychological equilibrium. Of course, due to human nature it is virtually impossible. Therefore, the trader must understand a simple rule: trading at the exchange market is admissible only in sound mind, which is not clouded by sorrow of lost money or dizzying excitement from a series of successful deals with big profit.