Trading Psychology

Your biggest enemy, when trading, is within yourself. Success will only come when you learn to control your emotions.
Edwin Lefevre's Reminiscences of a Stock Operator (1923) offers advice that still applies today.

The psychological aspect of trading is extremely important, and the reason for that is fairly simple: A trader is often darting in and out of stocks on short notice, and is forced to make quick decisions. To accomplish this, they need a certain presence of mind. They also, by extension, need discipline, so that they stick with previously established trading plans and know when to book profits and losses. Emotions simply can't get in the way.

There are many characteristics and skills required by traders in order for them to be successful in the financial markets. The ability to understand the inner workings of a company, its fundamentals and the ability to determine the direction of the trend are a few of the key traits needed, but not one of these is as important as the ability to contain emotions and maintain discipline.

First of all you need to remember that trading appears deceptively easy, but in reality you are attempting to achieve what 90% of seasoned mutual fund managers never attain; namely, to “beat” the market consistently. Moreover, trading is a profession where one is wrong a lot. If you lack the ability to admit you are wrong in a timely manner, you will suffer. Unfortunately, this is a skill few have ever practiced in the business world or in academia, which is why CEOs and Nobel Prize winners tend to make poor traders. Finally, trading is a profession where one’s perception of the market is invisibly mediated by one’s personality. Few traders take the time to overcome their own predictable reactions to their trading results, especially losses.

Very important thing for you, like a trader, that you should periodically review and assess their performance. This means not only should they review their returns and their individual positions, but also how they prepared for a trading session, how up-to-date they are on the markets and how they're progressing in terms of ongoing education, among other things. This periodic assessment can help the trader correct mistakes, which may help enhance their overall returns. It may also help them to maintain the right mindset and help them to be psychologically prepared to do business.

Concentration is one of the most important components of the emotional and mental state, as an object on which you focus your attention while trading on Forex market becomes real and helps understand the situation. Everything influences the analysis of the situation, interpretation of events, and emotions, which, in their turn, affect the decision. A very important thing is to manage priorities correctly. Do you think of a loss? Do you expect the profit? Please remember that trading is an attempt to keep the balance between the extreme points. A trader has to focus on possible loss as well as on possible profit and try to keep balance between them. A trader should always work on his strategy perfecting it and constantly analyzing the information from the market.

Human nature being what it is, most traders and investors ignore these rules when they first start out. It can be an expensive lesson. Control your emotions and avoid being swept along with the crowd. Make consistent decisions based on fundamental and technical analysis.

send message