Speculative trading in financial markets is an art. Have you ever wondered, what makes certain traders more successful than others even though they seem to have similar knowledge regarding the market? Don’t ever think that they might be having an insider tip or an extra special trading strategy, No it’s not, they all trade with normal trade setups like everybody, but after understanding they have explored and developed special mind powers.
Here is your Key to Success; it’s the Trading Psychology that makes the difference. You might not even realize how important your mindset is when it comes to trading, but yes for building a career or earning higher investment returns from speculating business, it plays a very important role.
Trading Psychology means to Adopt the Right Mindset for Chocolatey Profits 🙂
A trader should understand the importance of self-development in terms of controlling emotions and creating a practical attitude because trading is actually not for weak hearted people.
Trading psychology is basically all the emotions which you feel while trading i.e. starting from at the time of planning to enter a trade until the exit and even after that, as what are your feelings about the results of the trade. You need to understand that your emotions can be the biggest obstacle, as well as, the most powerful weapon in trading. Not even, the most unfavorable market conditions can harm you as much as your own feelings, but with a proper psychology and the right mindset, you can use your emotions in becoming a successful trader.
Greed & Fear: Two emotions that is common and also very dangerous for every trader.
As a trader, you deal with various situations in the market; some of them can be quite surprising, but if you are not educated and/or fail to implement the correct trading psychology, you will fail very soon, no matter how much powerful trading strategy you might be having.
Would you like to know, in which situations greed and fear overrides?
At what time, I am Greedy?
When you are still open on a profitable trade expecting to have more profits, even after your trade strategy is alerting you to book a profit.
When you start trading with higher lot sizes as soon as you profit from a couple of trades in a row.
When you start trading very frequently without following the rules of your trading strategy.
When you start day dreaming, instead of having realistic expectations to build your account equity.
When Do I Fear?
When you do not have the courage to enter a trade, even after you observe that your desired trade setup has formed.
When you close a trade very quickly, even after your trade strategy and all the market conditions are favorable for keeping the trade open to achieve the desired profits.
What should I do to overcome Greed & Fear?
You need to channelize your feelings and emotions via rational and practical thinking; otherwise they will only stand in between your way to make your trading career more difficult. You need to understand that small loses are a part of speculation, and every trader loses a trade at some point.
Don’t Be Scared! Have Patience. Your key to success is when you start trading with calculated risks for achieving higher profits by using the Risk Reward management in your trading strategy.
Trading psychology also includes that a trader needs to take quick decisions and be able to handle all the risks associated with the trade. Disciplined trading is very important while speculating, and it can’t be obtained if you let emotions govern your trading style. I know this is not easy, but as long as you are working in achieving the right mindset for trading, you will have higher chances in becoming successful.
My First Step for Developing Trading Psychology
There are many types of trading strategies, which a trader can adapt for trading forex, but kindly understand it very clearly that trading is not about guessing or listening to your heart or just using a random approach, but it is about taking logical decisions based on current market information and scenarios.
Create a Trading Strategy
The important step before entering a trade is to have a good trading strategy, which not only helps in analyzing the trade entry & exit points, but also Risk and Money Management because they help you in enjoying the ride of profitable trades and also if any trade goes against you, it helps you in closing it with a small loss.
All successful traders have one thing in common: A Good Trading Strategy. Now this does not mean that you should have an extra ordinary and/or complex strategy. You are destined to be successful even with a simple one, all you need to do is follow it wholeheartedly because in order to analyze the results of a trading strategy, it is required to test it over a period of time or a fixed number of trades like 100, 200 or 500, but many traders do not understand this and as soon as they lose a couple of trades in a row, they panic and start jumping in to and following another strategy, and this cycle keeps on going until the trader quits speculating.
You only need to find a clean and simple, yet effective trading strategy. The one that suits you and make sure to impose strict discipline in order to stick to it, which means even if your heart tells you to change the strategy for once; you should not listen to it unless there is strong evidence that a change of strategy can be profitable.
You need to choose trading strategy according to your personality. For instance, Day traders require taking action within a couple of minutes as soon as the trade setup is formed otherwise there could be a loss of opportunity to earn profits; likewise you can’t be a scalper; if you are not comfortable in reacting fast enough within a couple of seconds or you can’t be a long term investor, if you are not comfortable with the absence of immediate results. These are just examples, and it is you alone who can understand as what works best in your case. You need to trade in a manner that makes you feel comfortable and allows you to keep emotions under control.