Trading Psychology

People often think that Trading is gambling, and traders who are successful are just lucky. This thought is completely wrong.

In reality, successful traders are Disciplined to their Rules, well Informed, Emotionally stable, and mainly Robust. They always stick on rules and updated with the market status. In simple, all of these is nothing but Trading Psychology.

Psychology is all about the stuff that goes on in our minds and hearts, influencing how we act in different situations.

When we talk about trading psychology, it's about those smart brainy things that impact how traders make decisions.

In easy words, trading psychology is about understanding the thoughts, feelings, and emotions that come up to traders while trading are taking position. It's like knowing what's going on inside their heads while they're busy with their trades.

Lets understand by a simple Scenario, in which more than 90% traders will suffer even after they are trading from long back.

Meet Alex, our aspiring trader who's been putting in the effort to learn technical analysis and develop a trading strategy. After few days finally he decided to trade on live market.

Paper Trading:
Before going live, Alex practiced in a paper trading account with virtual money. When he made the trade in paper trading, he faced ups and downs in the market.
But, he stayed cool as a cucumber. Since it wasn't real money, he wasn't stressed about losing anything.
Alex had set a stop-loss level beforehand, and he decided to stick to his plan. As the trade started to turn around, he kept him cool and didn't let emotions get in the way.
Eventually, he closed the trade with a nice profit, just as his analysis suggested!

Live Trading:
When Alex finally decided to try live trading, he was super excited! He entered a trade based on his technical analysis, but once the trade was live, he got really nervous.
Every little price move made him worry about losing money. Market hits stop-loss moved up again, and in a moment of panic he brought again and closed the trade prematurely, and unfortunately, it resulted in a loss.
To recover the loss, he did multiple trades and finally he lost everything. And starts blaming others because of his loss

It seems like I am telling your story right? But you know what? This is something all traders experience. We're all human, and sometimes we get panic and struggle to stay emotionally stable and control our feelings when we are trading.

How to Improve Trading Psychology

Here are some tips that can really help:
- Take a Break :If you lose back to back in a trade, it's okay to step back and take a break for a few days. Give yourself some time to cool off and get back in the right mindset.
- Boost Your Confidence :Do thorough backtesting of your trading strategies. When you see that your strategies have worked in the past, it boosts your confidence in your trades.
- Avoid Comparison :Don't get caught up in looking at other traders profit screenshots. Everyone's journey is different, and comparing can mess with your head.
- Meditate Daily :Take out at least 15 minutes each day to meditate. It helps clear your mind and stay focused on your trading goals.
- Keep it Simple :Stick to 1 or 2 trading strategies that you're comfortable and confident with. Trying to do too much can get overwhelming and lead to mistakes.
- Log TradeBook : Log all your trades and focus and analyzes on all failed trades. Reason on most of failed trades will have same repeated mistake. Work and improve on that.
- Money Management :Follow smart money management rules. This means not risking too much on a single trade and protecting your capital.

Let's see how our emotions revolving around stock market trading:

Greed

Most people jump into the stock market with the goal of making money, and that's totally fine! But sometimes, traders set their expectations way too high and expect quick riches.

Trading is a profession just like any other, and it requires focus, dedication, and hard work. It takes time to build success, just like any career path.

For instance, making $1000 from a trade with $100,000 capital yields 1% returns in a day. Repeating this success for a month brings over 20% returns. Consistency can double the capital in 5-6 months

But here's the catch - many traders don't think about the percentage returns on their capital. So they end up taking big risks or making unnecessary trades, and sadly, they end up losing a big chunk of their capital.

Remember, it's crucial to protect your capital because without it, you can't survive in the market. And, of course, making consistent profits is the key to success.

So, if you're beginner, don't rush into the market thinking you'll get rich overnight. Take your time, learn the ropes, and be patient.
Fear

You know, many of our fears come from past bad experiences in trading. Like when you're all set to take a breakout trade, but there's this hesitation in your mind. It might be because you've lost money with Fake-outs before, and now your brain links them to pain, making you afraid to try again.

Sometimes, fear can also come from how we were brought up. If you grew up thinking that business is a bad thing, that belief might hold you back in your trading journey.

But don't worry, there's a way to overcome these fears! The key is to boost your confidence in trading. You can do this by backtesting your system with more data, reading books about trading, or taking a trading course that fits your needs.

And if you have fears related to your upbringing, it's crucial to identify and acknowledge them. Then you can use simple techniques like affirmations or practicing gratitude to work through them.

Remember, you're not alone in facing fears in trading. With a little effort and support, you can tackle them head-on and become a more fearless and successful trader!
Regret

Imagine you close a trade, but the price keeps going up, and you start thinking, "Oh no, I should have stayed in!" Or, you hold onto a trade, hoping for even more profits, but it turns against you, and you think, "I should have taken my profits when I had the chance!"

But here's the thing - regretting decisions won't get us anywhere. The key is to plan your trades carefully and stick to your plan. Remember, it's impossible to catch every single great move in the market.

Instead of dwelling on regrets, focus on learning and improving. Take it one day and one trade at a time. Every trade is an opportunity to grow and get better at this game.

So, be kind to yourself, accept that not every trade will be perfect, and keep moving forward. Learn from your experiences, stay disciplined, and keep honing your trading skills. With time and practice, you'll become a more confident and successful trader!
Hope

Let's talk about hope in trading - it's something we all experience, but it can sometimes lead us down the wrong path.

Imagine a trader who has a solid plan for buying a stock at 200, setting a stop loss at 198, and booking profits at 204. So far, so good!

The price reaches 200, and he's in the trade - awesome! But then, it moves to 204, and instead of booking his profits as planned, he starts hoping for more. He thinks, "Hey, maybe there will be a short covering rally, and I'll make even bigger profits!"

But you know what happens next - the market takes a U-turn, and the stock price drops back to 199. Now, he hopes for a rebound, thinking, "It'll bounce back any moment now!"

Unfortunately, it keeps going down, below his stop loss level of 198. But he's still hoping for a turnaround, even when the price hits 196.

In this example, what happened? He lost control of his trading plan. When we deviate from our pre-planned stop loss and target, we're no longer in control. We start making decisions based on hope, which can weaken our trading strategy.

So, always be prepared with clear action points - your stop loss and target. Stick to your trade plan and act accordingly. The market presents plenty of opportunities, so don't get stuck hoping for one trade to turn around miraculously.

Remember, hope is great, but when it comes to trading, relying on it can lead to trouble. Stay disciplined and true to your plan, and you'll be on the path to more successful trades!

Example-1 : Human Psychology while trading

Example-2 : When trader follow Rules Too much

Example-3 : Human emotion while trading

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