Trading Psychology - Beyond the Edge

Updated: Jan 7

The market has the challenges of both individual and crowd psychology that a trader must learn to contend with as he progresses from newbie to expert. The market is an extremely competitive environment, traders are constantly faced with challenges that will test the limits of their psychologies and skill.

Whether you want to trade commodities, currencies or stocks, in the end, trading is primarily a game of psychology, survived by only the toughest and most disciplined.

Financial trading is an old game, played in an organized arena governed by some Golden Rules. Regardless of your professional background, the desire to stand out in trading brings out a challenge that can only be overcome by the toughest and most determined individuals. And to those who succeed, the rewards may be substantial. To the reckless and unprepared, substantial losses lie ahead. If you are willing to work hard enough, the market may gladly hand you the rewards you deserve.

The financial market is a perfect measurable representation of optimism and fear as a result of collective, it reflects the human behavior as a flawless example in every area. Once you realize that the movements in the financial markets are caused by humans and their feelings, you'll might have a better chance to follow it. Never fight the market - go with it!

Some traders would go as far as saying that psychology and emotions are 80% of the battle.

Even if you lived your life as a calm and analytic person your entire life, don't assume you will stay relaxed and in control when you start trading. Do not overestimate your ability to be unaffected by emotion.

The pressure and stress you’ll face will be far greater than anything you’ve ever experienced – especially if you’ve only been a student before. Often, it is the psychology, and not a lack of academic knowledge or skill in application, that is considered to be the primary creator of trading mistakes.

That common trait is fear, which creates the - fight or flight response in humans. Unfortunately, it is this fight or flight response which can cause the downfall of many traders.

Human feelings has been evolved over over millions of years and there is not much we can do to change them. The only ting we can do is change the way we approach these feelings.

Fear and greed can have a significant effect on your trading behavior. Your mind will want to find the safest option to ensure survival. This is just the way the human mind operates, no matter if you are chased by a wild animal or loosing money in the market, your natural instinct would be to pull out of the trade, so that you don't incur further losses.

The easiest way to overcome this is to have a plan for your trading. If you handle your trades according to a plan then you will be able to keep feelings away from your trade management.

There is only one way to get confident with your trading, and that is to have a trading strategy and a trading plan that you know will make money over time.

Once you have a plan to follow, and you follow that plan daily, weekly and yearly, that's when you'll make money.

Doing something you know pays of over time will take your trading where you want it to be and you will also be able to compound your money year after year.

Discipline is not a natural behavior that humans is born with, but it's actually not very hard if you have a vision and goal. Only you can do something about your discipline, so why not start right away.

If you say to yourself - "I'll start tomorrow" then you have already lost... You can read all about "A traders journey to become profitable" in our forum here.