Learning About Trading Psychology
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Think about what a successful trader’s life may be and you will probably think of riches, independence, and freedom to do more meaningful projects while still continuously creating income through trading. While this may not be further from the truth, it is however, not always the case. Because even though there are many traders who have tasted success, using their best trading plan or trading systems, there are also traders who have lost and probably even had gone broke. Whether good or bad, these traders have all experienced what is called the trading psychology.
You might have already heard of it but not quite sure what it is all about. As we can simply explain it, trading psychology is about the perception change that any trader will encounter or feel whenever he is transacting within any given market. But as a new trader, he may not always experience success in all his tradings. It is even said that a first time trader is expected to lose a few during his first deals. However, the matter worsens because of the fact that the money he is putting out there is from his own savings. Naturally any loss in the tradings will have a big effect on the trader. It also goes for the times he would win big.
Trading psychology, although it affects all traders, would affect the first time trader most of all because he simply does not possess enough experience on how to best get in and out of a market or how to react to the results of his tradings. Even if he had set his trading goals, no matter how realistic these can be, problems and misfortunes may arise because the market is always volatile and unpredictable. The best trading systems would be rendered worthless if the trader does not know how to balance his trading techniques, emotions, and gut feel whenever he is active in a market.
Naturally the first trade is crucial because it will help teach the trader on the basics on how to best handle a trade, whether the result is beneficial or not for him. The stakes are even greater if the money involved is his own savings. This is because he will feel greater attachment to the money or stock or whatever it is being traded. When this happens, his thoughts or decisions might be unstable and may not be the best approach for that particular trade. Lost opportunities and trading mistakes are therefore common at this stage.
Another instance that a trader might experience a piece of trading psychology is when for a long period of time he has been actively trading in a specific market, and in high probability, has been making great gains from it. And then it happens. The numbers are not so good anymore. Everything seems to be going down, slowly but surely. The normal thing or the quick thought of anybody would be to make a quick trade exit, at least while he can still make even a little profit. But due to his pride, his ego, or just plain nostalgia that he has for that market, he prefers to hold on. Which is a good thing if he knows that the market would improve eventually. But other traders who have gone through this have lost considerably.
Understanding how a trader’s mind works is very important so you, as a trader, can properly react to any changes in the market and make the best trading decisions. Trading psychology is broad and complex but just to learn the basics is often enough to make you a better trader.
