Do you remember the feeling the last time you opened a position? Are you nervous to jump in, or afraid to lose? Do you hesitate before opening your position? When you close the trade, do you feel elated or frustrated? The emotions of thousands of traders coalesce into huge psychological tides that move the markets. Trading psychology involves the process of analyzing behavioral patterns and that leads to informed trading decisions.
Why is psychology so important?
A trader’s mentality is reflected by their trading behavior. No matter how well conceived your trading strategy is, your success is determined by how you feel about the market.
Anxiety, fear, and greed are all emotions that traders experience from time to time. Some of these feelings can be helpful for trading, while others can have a negative impact and need to be controlled.
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When making options, traders with a good understanding of trading psychology are less likely to let their emotions or biases get in the way. One’s chances of making money in one trading session, or at least limiting losses, can be improved with a positive mental attitude.
When it comes to trying to get the most out of a trade, greedy traders stay in it for too long. At the end of a bull market, it is customary for traders to take riskier, speculative positions in an attempt to make a profit. On the contrary, fear is the reason why traders cut their losses short or avoid taking dangerous positions in the first place. The irrational rush of investors to withdraw from a trade is a direct result of their fear of losing money.
Four trading tips
Below, you’ll find my four tips for mastering trading psychology:
Practice
In trading, there are four types of patterns to watch out for: bulls, bears, pigs and sheep. Bulls and Bears both make money, but Pigs are slaughtered and Sheep fear the trend. So through story you need to have an eye to identify the market and that can be done through practice. If you practice a lot every day until the last day of your trading career, you will make money like a bull or a bear, and will never become a pig or a sheep. Sometimes you need to pause for a while before continuing.
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A trading plan
The best way to control your emotions while trading is to remove them completely from the process itself. Creating a trading plan can help you manage the emotional side of things. The plan must include elements for market entry, daily profit target, trade and exit time. Once created, follow it religiously. Simply put, double-check, analyze, and repeat.
Take Profit and Stop Loss
Trading is a financial balancing process. By sticking to your trading plan, you can plan your profits day by day. The most important part is stop loss, this can be achieved by setting appropriate Stop Loss levels. Beginners tend to neglect risk management, and that’s why they lose. Knowing when to stop is very important.
Don’t quit your job
It is very important to keep in mind that no one becomes a successful trader overnight. The biggest problem with all newbies is that they want to make money fast. This mentality places a huge burden on your mind and causes you to act at a loss.
You should have a primary source of income while avoiding dealing with other people’s money, borrowed money or your unusable income. This will ease the trading pressure and bring more clarity.
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