The Psychology of a Trader

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Today, I will be highlighting the trading psychology traders needs to be successful in the market today. A lot of newbies come into the market with fantasies and overhype of the financial markets. This is can be triggered by the social media or information they got from friends. Also, the mindset that learning and combining a few technical indicators can help them to be successful. A trader's mindset about the market determines his success in the financial market.

Trading psychology plays an important role in our trading journey. Studies show that trading psychology contributes up to 70% of a trader's success. The experience you have in the market or the experience you have in technical analysis, if your psychology about the market is not good, you will still up losing money in the market. The market is designed to frustrate you and take your money. The brokers want to make money, the exchanges want to make money too and the higher institutions controlling the market are also after making profits. Everyone in the market wants to make money from those losing money.

In this post, we will understand trading psychology properly.

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Trading psychology in simple term is the mindset a trader has about the market and also how a trader manages their emotions while trading in the market. There are two sides to the psychology of a trader. The good side helps a trader in his trading journey and also the bad side can ruin your dream of becoming a successful trader.

Some bad psychology includes fears, greed, anxiety, overconfidence, and FOMO. Some of the experiences with poor psychology can be listed below.

• Overtrading to make more money.
• Overtrading to recover a losing trade.
• Increasing your position due to overconfidence.
• Trading without risk management.
• Jumping into the market after a market spike.
• Not booking profits on time.
• Closing your position due to fear of price reversal.

When the above scenarios hit back and produce a loss, our emotions tend to be triggered and things even get worst. A good trader manages his fears, emotions, and psychology in the market. Some of the above scenarios are common mistakes traders make. The most important thing is the proper management of the psychologist. That's what differentiates successful traders from others.

Let's get deeper into trading psychology.

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The most common emotions traders face in the market are fear, feeling nervous, overconfidence, greed, and excitement. When these are managed improperly, a trader seems to be frustrated and end up blowing their trading capital. Fear always comes in when a trader is trading with a high lot size or high leverage position. Another source of fear is when you enter a position that doesn't follow your trading plan. This makes you feel like you are in the wrong trade because you didn't carry out your analysis before entering the position.

A good example, in this case, is a forex trader opening a position on Gold. We all know that the volatility of both markets differs. A trader needs to be excited about a position he/she opens. Even if the trade turns out to be negative, you are excited that it was carefully analyzed and follows your trading plans.

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Greed is one of the emotions that have killed the dreams of some traders. I have been a victim of the consequences of greed as a trader before I was able to put my psychology together. I blew up my first 3 accounts due to the mindset I had coming into trading. Greed can make you overtrade and increase your lot size because you want to make more money.

Greed always gets enticing when we have a winning trade. Thinking about how much you would have made if you had doubled the size of your position will push you into the market again. This time around, you are going all in without proper risk management. Anxiety kicks in when this position yields a negative result. Overcoming greed plays an important in the success of your trading career.

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Fear of missing out. Everyone wants to jump in and catch the next market move due to speculations around the asset. FOMO makes you jump into a trade that is not according to your trading plan without carrying out a proper analysis of the asset. It can also happen to our favorite asset. One thing we need to understand is that the market is always there 24/7 to wait for a good trading setup. An opportunity will always come and missing a trade shouldn't worry you. Another opportunity that will follow your trading plan will always come around. So why FOMO?

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Everyone makes mistakes in the market. Even professional traders sometimes make mistakes In the market. But these mistakes are calculating and can't pose a threat to their positions or trading capital. Also, these mistakes can be avoided by having patience and waiting for a trade to meet your entry criteria. Also, you can avoid trading in every market and using high position sizes. Like I said previously, you need to find what works best for you and stick to it. Also, ensure you have tested a particular market and have figured out the source of price movement before trading it. What works in the forex market won't work in the crypto market.

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Trading Psychology plays a crucial role in your trading journey. The majority of what the traders suffer in the market today is their emotions and mindset about the market. Having a good understanding of basic trading psychology will go a long way to help your trading journey. I have highlighted some basic trading psychology in this post. You can as well make your own research for better understanding.

Cc: @reminiscence01