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No matter how much you learn, study, or practice, trading psychology is one variable that will dictate your success in the market above all else.
However, if you are patient and able to wrestle it under control, the variable can turn into a reliable constant.
This linchpin should be your mental state each and every day that you sit down to trade!
Whether you had a bad night before or a complicated morning leading into your routine.
Conquering your mental balance and bringing it back under your control is the most important thing you can do to consistently and efficiently execute your trading duties.
A foolproof trading plan is great and necessary! – But if it succumbs to emotional swings, then you’ll find yourself working from a place that’s not tethered in the structure you built for yourself.
In order to make and keep yourself mentally on top of your game, we’ve put together this countdown list of the top 11 trading psychology tips to winning the psychological game.
We mentioned at the onset of this article that it’s great to study, learn, and pour over as many charts as you can, but at the end of the day, those numbers will only get you so far.
Many new traders come technically prepared but not emotionally. Things might go well at the start, but when a big loss hits, many new traders lack the emotional strength to stomach it well.
This inexperience pushes many to act hastily and change their setups. The problem with this is just because they lost a trade; it doesn’t mean there is something dramatically wrong with their setups.
Whereas seasoned traders will be confident in their plans and realize that it takes time for things to develop. Trading psychology teaches us that it’s about long-term growth, not quick instant gratification! Once the trader realizes it’s okay to have a loss in the short term because we’re actually focused on the long term, the big picture.
The market is random. Repeat that out loud – until it’s seared into your brain.
No amount of preparation can prepare you for someone who, halfway across the globe, is making a monumental trade and upsetting all of your plans.
The only way to deal with the arbitrary moves that the market might make against you is to disconnect all emotional ties. If you can’t change what’s going to happen, then you can’t be upset when it does.
Simply accept that the market will do whatever it wants to do regardless, and you will free yourself from the stress and tendency to cut profits short or get stopped out short because you’re convinced that the market should take a specific action.
While it’s important to analyze the day-to-day trades you make if you only take this micro view, is it really possible to gauge the health of your trading plan on such a small scale?
The answer is probably no.
It’s important that when you look at the health of your trading, that you look at your equity curve before you start dissecting individual trades. This way, you’ll be able to tell whether the system is working, if you’re psychologically processing information properly, or if you’re actually sabotaging yourself and the problem lies in your mental approach and not in the plan you’ve been working with.
The great thing about the internet is it provides us with unlimited resources to supplement our trading routine and education.
The worst part is the vast majority of this information is the noise that will only distract you and pull you away from your confidence in your own ability in the market.
One of the great things about trading is – everyone comes to the market with a different approach. What works for some guru in one corner of the internet might not work for you. It’s best to develop your own unique approach that best suits your personality and then shut out the voices claiming to have found the best or can’t-miss strategies for tackling the market.
Let us know if this sounds familiar: You claim that you’re OK losing your money and that you always place your stop. But when you place your stop far off your entry price and don’t see the trade developing as you had expected, you move your stop up. Now, guess what? The stop is triggered just before the market moves in the direction you originally expected. And so, it turns out that your analysis was right, but what stopped you from trusting your trading was a fear that you could lose money. You must be comfortable with taking risks and letting trades play out.
Regardless of whether you have a great analysis of what you think the market is going to do, you must develop a clear plan for exiting a trade a winner. Without a clear trigger, many traders will hold on, expecting (and hoping) the market will move in the direction their analysis indicated. The problem is, as we mentioned, the market doesn’t always go in the way well-thought-out analysis said it would. Have a trigger in place to take your profits rather than let the market deliver a clear exit sign.
Now, this is not only trading psychology tips-related – No matter how well you prepare and execute, you’re going to lose trades from time to time. Losing a trade doesn’t mean your plan was bad or you weren’t well prepared. It could simply mean that the randomness of the market has deviated from your expected result. No amount of planning could have foreseen this result, and ultimately, you were wrong. Not because you’re dumb or pathetic at trading but because the market does what the market wants to do. Accepting that you were wrong will go a long way to making you more comfortable and able to cope with loss.
Take every setup that fits your system when it crosses your path. No amount of over-analysis will tell whether it really will work or not, but as long as it fits your setup, it’s good to take. When we over-scrutinize well-fitting setups, we create tension and anxiety that is not necessary to feel. Taking every opportunity that fits and allows us to trade in harmony with the market and put our faith in our setup, not our overly critical minds.
There is no cap on what you can make in the market. If you take a long-term and consistent view of your gains, then the sky’s your limit in terms of earning potential. Set up a good system, start taking consistent gains (there will be losses, too), and zoom out and see the limitless potential.
When you make a mistake, acknowledge it and own it. Embrace your flaws and incorporate ways to offset them into your trading plan. Issues in the market generally stem from mental approaches to the market, not the technical details of the approach. Learn from your mistake or loss, forgive yourself, and trade again according to your plan.
In most aspects of life, confidence is the key to just about everything. You can’t succeed if you take trades fearfully when they meet your parameters. Believe you’re a winner, and you will start to think like a winner!
For some reason, most traders don’t emphasize the psychological part of trading, though professional traders always say it’s one of the most important parts of a trader’s life.
If you want to take your career to the next level, you have to understand trade psychology and how to deal with it; use the trading psychology tips from this article to improve your trading!
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