The Ins And Outs Of Trading Psychology

For something that is believed makes up the bulk of trading itself, it is also the most overlooked. Trading psychology is the topic, and it is definitely the most important aspect of trading that every trader needs to develop and master in order to become successful.

In the most basic ways to put it, trading psychology is the term that defines all the feelings and emotions experienced day to day by traders. It is not something that can easily be controlled, however with time and experience it is definitely something that is needed to master in order to move forward in your trading journey.

Fear and Greed

The two emotions that drive the markets are fear and greed. Based on these two emotions, you can find all the negative effects of trading psychology.

Based on the emotion of fear, the following can occur:

  • Fear of missing out (FOMO), leading to bad entries
  • Exiting a trade too early
  • Exiting a trade in a drawdown only to see it go in their original direction
  • Adding to a losing position in hope of recovering the drawdown
  • Constantly checking your trade
  • Finding yourself glued to the charts

Based on the emotion of greed, the following can occur:

  • Moving your original TP in order to gain more profits
  • Adding large positions after seeing gains in a position
  • Over trading and overleveraging to chase big returns
  • Risking big on a single trade

Mistakes and Losses

Another important thing that needs to be understood is the difference between mistakes and losses. A lot of people think that trading mistakes and trading losses are the same thing. However, a trading loss is simply a trade that hit your stop loss and did not go your way. Until the day you learn to accept that losses are just as much a part of trading as winners, you will not become successful. A trading mistake on the other hand is you simply not following your own rules. You have to understand the importance of being disciplined and how it is possibly the single most important aspect of lasting in the markets. Never break your own rules just to be right, because as said earlier, you need to learn that losses are completely normal and expected.

Emotions are a normal part of everyday life, however it cannot be stressed enough how important it is to leave them completely out of your trading. Many others believe that negative emotions should be shut off, however positive emotions are great to have, however I think otherwise. Emotions should not be attached in any way to trades, whether positive or negative. If emotions are attached to every single trade then what can happen is that you could have a great week and make a certain amount of money that week. Now by attaching an emotion to that trade, you are programming your mind to believe that the following week even if half that amount was made, it is not good enough as you do not have the same intensity of positive emotions. In trading you have to be emotionless towards both wins and losses and strictly follow your rules.

Improving Your Mindset

Constantly working on your psychology and mindset is key to developing and succeeding as a trader. Something as simple as developing a daily morning routine, keeping a journal, meditation, exercise, and visiting a mindset coach, are great tools to constantly develop and keep your psychology and mindset at its best. Meditation alone has helped me to develop as a successful trader by improving my focus and attention, reducing stress, reduced panic, improved my information processing, increased mental strength and emotional intelligence, and increase in my focus.

If there is one thing that cannot be stressed enough, it is that the aim of forex is to gain pips and not money. Chasing money, especially fast money, is gambling and you will never have control as long as you remain with that attitude.