Here is a fast example of what makes a trading psychology. What makes the difference between a ‘good’ trader and a ‘bad’ trader? Two people may start off with an identical quantity of money, have the same skills and enter into the same number of trades over the same period. At the end of that time, one may have earned 30% more than the other. How is that possible?
It is likely that one could have got too greedy and too alarmed, cutting her winning trades short and letting her losses run, while the other had a firm commitment to adhere to her technique regardless of what, and therefore was ready to reap a far greater reward.
When trading, there are 2 vital facts to recollect. First off the ‘good’ trader respects her established rules, sticking by them through the upturns and the down. Secondly, the ‘bad’ trader will let her emotions determine when she trades, which will end up in inconsistent trading and ultimate failure.
There are 3 ingredients to trading : a trading technique cashflow management and psychology. The reality is, trading psychology is more crucial than the other two factors combined.
What’s psychology? It has been declared it’s the ‘science that deals with mental processes and behaviour.’ Emotions such as fear, greed, vainness and pride all influence a person’s trading. The bad trader will allow her feelings to regulate her. For example, when a trader closes out a position too early or too late, she’s letting her feelings to control her behaviour. She is exhibiting loss hatred, where she is strongly preferring to avoid losses to taking gains. She sees her trades lose, but continues to let them run, hoping against hope for a turn around. Frequently this just does not happen, and she loses all she has invested.
Loss dislike is also demonstrated when traders close positions too early. When they see a low profit, they are frightened to lose what they already have, so they close the position out too early.
It’s required to act in a counter intuitive demeanour when trading. Following natural intuition, you would expect to take any small profit as quickly as you make it. Nonetheless this isn’t the way to become a successful trader. The successful trader will act counter naturally, and let his profits run. In a similar fashion, he is going to act against his natural instincts when he sees a loss, and rather than waiting for a turn around, he will cut his losses short.
Discipline is what is finally required in trading. When a disciplined approach is constantly taken, that trader will gain confidence. The trading plan is the key to it all, but the trader must have the control to follow this plan thru thick and thin.
Another trap many new traders fall into is making an attempt to trade multiple markets. This just will not work. You need to pick one market and one pattern, and again, this is counter intuitive. You have to endeavour to defeat the one market. Have a trading plan, follow it with discipline, take charge of your feelings and you may noticeably raise the probability of turning into a successful trader. You need to also find out more about trading psychology in the midst.