The Psychology of Trading

By | December 23, 2013

Trading  successfully is not an easy game. Many people may think it is a difficult venture due to the fact that it is a complicated process and the markets move much too fast. There may be a little bit of truth to that, but in reality the downfall of most  traders lies in the fact that most traders defeat themselves.

The markets are setup to confuse the greatest number of people and that is why psychology plays such an important role in trading.

Cannot Make the Trade

You’ve done your research and the market is exactly where you want to buy it. Everything looks good, but you hesitate. You’ve been burned on your last two trades and you don’t want to have another loser. The market starts to move higher, but you haven’t placed your order. You missed the trade. Now, you’ll just wait and see what happens – were you right or wrong?

You were right, but you didn’t make the trade. Now, you are furious and you look for any trade to get your money back. Of course, you take a trade that doesn’t really fit into your trading plan and it turns out to be a loser. Now you are livid and your mind is so screwed up that you don’t have a chance at making money trading.

Cannot Take a Loss

This one claims more victims than you can imagine. Many people have a mental block where they simply can’t take a loss. It makes them feel like they failed or lost because a trade didn’t go their way. I have to tell you that losses are part of the game of trading  If you can’t take a loss, you shouldn’t be in this game.

Cricket players are considered very successful if they can get a hit half century every 3 out of 10 times at the plate. It is not much different with  trading. You have to accept and embrace losses as a given and move on to the next trade. Many new traders will let one or two big losses destroy their account. Always live to trade another day.

Psychology plays an important role in trading  If you develop a good trading plan and avoid being lured in by the siren calls of the markets, you have won half the battle. Things will get frustrating at times when you trade , but you have to keep a level head. People do not make good decisions when they are under stress. Holding onto losing positions, hoping, losing confidence and deviating from your trading plan will cause you that unnecessary stress.

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