Table of Contents
- Missing Opportunities Trading Psychology:
- Taking and Managing Trades per Rules Trading Psychology But:
- Trading Psychology Of Breaking the Rules:
- Fear Trading Psychology:
- Greed Trading Psychology:
- Arrogance (Pride) Trading Psychology:
- Hesitation (Lack of Confidence) Trading Psychology:
- Over-confidence Trading Psychology:
Trading Psychology is the most important thing to success in your trading strategy. When you feel angry or uncomfortable in trading, it’s usually because you have underlying beliefs used by your subconscious mind to interpret neutral information received from the market painfully. If you find and replace that underlying belief with a positive belief, the anger will be gone.
Missing Opportunities Trading Psychology:
1- You miss a good trading opportunity.
- I have to take advantage of every opportunity in the market.
- I only need to take advantage of a few opportunities in the market to make consistent money. There’s always tomorrow and other trading opportunities.
Taking and Managing Trades per Rules Trading Psychology But:
1- The trade doesn’t seem to be working and you’re afraid of loss.
2- The trade is in profit but you can’t take profit per rules and you’re afraid of losing your profit or possibly losing the trade altogether.
3- You get stopped out and lose the trade.
- I expect the market to make me a winner on every trade.
- Individual trades are unimportant; I just trust the statistical probabilities of my system and focus on the big picture. I understand that it will take a certain number of trades to make statistical probabilities work and make me a consistent winner.
4- You get stopped out and then trade goes in your direction.
5- You see a trade stall and exit but it starts going in your direction.
- Market doesn’t like me (I was right about the direction but the market stopped me out or made me exit before taking off in my direction)
- I expect the market to make me money on every trade.
- Market will do what the market will do and it has no interest in me as a person.
6- You take your profit early and it starts going more in your direction.
7- Your trailing stop gets hit and you miss a bigger move.
- Greed: I expect to catch the whole move and make the maximum amount of money on every trade.
- I am happy that I could catch part of the move and made some money. I’m grateful about this trade and respect the market for how much it is willing to give. There are always other good opportunities in the market and I will take advantage of them as they are given to me.
Trading Psychology Of Breaking the Rules:
1- First of all, accept the fact that you’re an emotional being and no matter how perfect you think you are, you’re still subject to making mistakes.
2- Realize that even professional traders breach their discipline and break their rules every now and then.
3- It’s ok to make a mistake as long as you learn something from it and commit yourself to do whatever it takes to find the reason behind it and stop it from happening again. Making a mistake is acceptable but repeating it is not.
4- Use the following exercise to identify and resolve the problem. Ask yourself:
- What’s great about this?(or What could be great about this) Believe that everything happens for a good reason. Every mistake is a learning opportunity. It’s just a feedback to tell you that something needs to be changed. By making a mistake and solving a problem, you just expand your comfort zone which helps you handle future problems better. Write down anything positive about this situation and appreciate the learning opportunity you’re given as it makes your future brighter and more rewarding.
- What’s the cause of this mistake? Fear, Greed, Arrogance (Pride), Hesitation (Lack of Confidence), Over-confidence, Distraction, Impatience, Revenge, Bias, Attachment, etc.
- Why did I make this mistake? Try to identify the underlying reason why you made this mistake. By asking this question, you’ll try to find the bottom line of the mistake. For example, if after the previous question, you realize that the origin of your mistake has been “Hesitation”, by asking this question you may get to the point that your hesitation has been because of the most recent losses you’ve had making you hesitant in pulling the trigger.
- What am I willing to do to stop this mistake from happening again? Write down anything you can do to make it the way you want it. Use affirmations, belief change work, energy psychology, etc. to help you with this stage.
Fear Trading Psychology:
You have fear of losing a trade or losing your profit. It’s because:
- You’re risking the money you can’t afford to lose. The only thing your subconscious does is to focus on not losing instead of focusing on taking advantage of your inventory to manage the trade.
- Reduce your risk to the amount you can comfortably lose in a streak of losers and still be mentally ok to take the next trade setting up.
- You don’t have complete trust in your system or yourself as a trader.
Greed Trading Psychology:
Your trade is in profit and has hit the target but you don’t take it. It’s because:
- Greed is part of human nature so you want to take maximum profit from each trade. Instead of thinking of money, you should have a systematic way of profit taking which suits your personality and then stick to it no matter what. Believe that sticking to your rules and being disciplined has priority over making a little more money on individual trades. It pays off much more in the long run.
Arrogance (Pride) Trading Psychology:
Your expectation that something should happen is not realized so you get a feeling that you’re inferior to the market or have lost your pride. It’s because:
- You interpret your wins and losses as your victories and failures. Instead, consider them as the outcome of statistical probabilities just like flipping a coin. Wins or losses, making money or losing money don’t have anything to do with you as a person. Consider all market moves just the outcome of collective understanding of all market participants relative to each price level.
Hesitation (Lack of Confidence) Trading Psychology:
You see a clear setup but you hesitate and pass on the trade. It’s because:
- You lack confidence in your system. It’s because you don’t have a sound trading plan and you’re afraid of losing before even taking the trade or you don’t have enough confidence in the system as it’s not tested. If this is the case, start paper trading again and don’t put real money until you gain confidence in the system.
- You lack confidence in yourself because of the recent losses you incurred. Go back to your journal and see if you broke any rules which made you lose. If this is the case, try to find and resolve the problem first. Then get back to the market and try to make up for the losses a little bit at a time. Focus on re-establishing control over trading by assuming less and less risk until you have slowly recovered your losses and have got your confidence back. However, if you figured that the streak of losers had nothing to do with you breaking the rules, remind yourself the laws of statistical probabilities and that a loss is as much evidence as a win, evidence that you’re a successful and disciplined trader. Whichever way a trade goes, it just tells you that the market will do what the market will do.
- You lack confidence in yourself because you don’t want to lose the profit you’ve already made. See if you have reached your daily profit target goal. If not, continue taking the trades until the session end.
Over-confidence Trading Psychology:
You try to create trades which are not there. It’s because:
- You’re trading after a streak of winners and think of your winning trades as your victory over the market and a sign that you can control the market. It boosts your confidence and sense of pride. Instead, you should know that based on laws of statistical probabilities, there’s a random distribution between wins and losses for any given set of variables that define an edge. So you can have a few winners in a row as much as you could have a few losses in a row and it’s all neutral information from the market’s perspective. Over-confidence is as devastating as Lack of Confidence and should be monitored properly.