Psychology is perhaps the single most important aspect of trading. Without the proper psychology, you are almost guaranteed to fail.
First things first, you have to understand that trading is just as much of a profession as any other, and just like top performing athletes, trading reflects your performance, you are responsible for your results.
In life your beliefs shape your reality, and you have to believe without a doubt that you could become a trader. Only once you completely trust yourself, you will be able to go ahead and become a trader. Every aspect of trading is psychological including everything we have spoken about pretty much. And since you trade your beliefs, that makes the biggest impact on the results you will receive. People make decisions based on fear or greed, it is that simple. And since the market is designed to take advantage of individuals psychological weakness, if you do not have control over yours then you will be a part of the 90% who lost that day.
Since all trading is psychological, it is most important to always be working on yourself as a person, because that will greatly impact your mindset and attitude while trading. You cannot finish fighting with a friend, partner, or spouse, and sit on your computer expecting to make great analytical decisions while there is anger and indecisions going on in your head. Trading has to be treated just as much of a business as any other.
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.
By following your rules, you will focus less on being right and have less emotional attachment to trades. 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.
According to Dr Van K. Tharp, there are 12 tasks of trading which include:
1. Self-analysis to determine if you are in a state of mind to trade
2. Mental rehearsal to avoid mistakes
3. Daily focus to lead you towards your goal
4. Developing your own style of a low risk idea
5. Stalking the charts starting from high to low time frames
6. Action requiring commitment and not thought
7. Monitoring the trade to keep the risk low
8. Aborting if the trade is not going well
9. Taking profits when the reason for the trade has ended
10. A daily review to monitor and prevent future mistakes
11. Being grateful for what went well
12. A periodic review to make sure everything is still working well
One of the biggest parts of a good trading psychology is believing in yourself. This can sound very straight forward until you deposit real money and place a trade. You will see parts of yourself being tested that you didn't know existed. You might find yourself checking the trade every few minutes or even seconds, you might look at your drawdown and doubt everything that you have done, you might lose a trade and think that you will never analyse another right. Let me give you some common examples, you analyse a trade and all the confluence is there, you then monitor your trade and after several hours you find yourself in drawdown leading you to close the trade, hours later you see that the price went to exactly where you had your take profit. Another might be after losing a trade you see a great opportunity, but your previous loss makes you doubt everything about the trade, only to see it reaching where you had in mind also. Of all the things learnt, if your psychology is not your main focus of work, you will not be able to succeed as a trader, not because you do not have the right knowledge and analysis to trade, but because you are your own enemy.
Over trading is another reason why many people do not last long in the markets. Over trading is extremely negative as placing too many trades and adding on to your losses, you are not managing your risk correctly and only exposing your account and capital to more risk. The psychology going from demo to a real account is great also and individuals need to be careful as emotions will come into play.
If there is one thing that cannot be stressed enough, it is that the aim of trading 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.
First things first, you have to understand that trading is just as much of a profession as any other, and just like top performing athletes, trading reflects your performance, you are responsible for your results.
In life your beliefs shape your reality, and you have to believe without a doubt that you could become a trader. Only once you completely trust yourself, you will be able to go ahead and become a trader. Every aspect of trading is psychological including everything we have spoken about pretty much. And since you trade your beliefs, that makes the biggest impact on the results you will receive. People make decisions based on fear or greed, it is that simple. And since the market is designed to take advantage of individuals psychological weakness, if you do not have control over yours then you will be a part of the 90% who lost that day.
Since all trading is psychological, it is most important to always be working on yourself as a person, because that will greatly impact your mindset and attitude while trading. You cannot finish fighting with a friend, partner, or spouse, and sit on your computer expecting to make great analytical decisions while there is anger and indecisions going on in your head. Trading has to be treated just as much of a business as any other.
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.
By following your rules, you will focus less on being right and have less emotional attachment to trades. 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.
According to Dr Van K. Tharp, there are 12 tasks of trading which include:
1. Self-analysis to determine if you are in a state of mind to trade
2. Mental rehearsal to avoid mistakes
3. Daily focus to lead you towards your goal
4. Developing your own style of a low risk idea
5. Stalking the charts starting from high to low time frames
6. Action requiring commitment and not thought
7. Monitoring the trade to keep the risk low
8. Aborting if the trade is not going well
9. Taking profits when the reason for the trade has ended
10. A daily review to monitor and prevent future mistakes
11. Being grateful for what went well
12. A periodic review to make sure everything is still working well
One of the biggest parts of a good trading psychology is believing in yourself. This can sound very straight forward until you deposit real money and place a trade. You will see parts of yourself being tested that you didn't know existed. You might find yourself checking the trade every few minutes or even seconds, you might look at your drawdown and doubt everything that you have done, you might lose a trade and think that you will never analyse another right. Let me give you some common examples, you analyse a trade and all the confluence is there, you then monitor your trade and after several hours you find yourself in drawdown leading you to close the trade, hours later you see that the price went to exactly where you had your take profit. Another might be after losing a trade you see a great opportunity, but your previous loss makes you doubt everything about the trade, only to see it reaching where you had in mind also. Of all the things learnt, if your psychology is not your main focus of work, you will not be able to succeed as a trader, not because you do not have the right knowledge and analysis to trade, but because you are your own enemy.
Over trading is another reason why many people do not last long in the markets. Over trading is extremely negative as placing too many trades and adding on to your losses, you are not managing your risk correctly and only exposing your account and capital to more risk. The psychology going from demo to a real account is great also and individuals need to be careful as emotions will come into play.
If there is one thing that cannot be stressed enough, it is that the aim of trading 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.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.