In the trading domain, trading psychology includes all the emotions and feelings that a trader encounters. Success or failure in trading securities is influenced by trading psychology and it involves various characteristics and behaviors of an individual influencing the aspect of trading.
How to develop trading psychology?
Put yourself in the right frame of mind
As you begin trading day always remember that markets are never constant. You will have some good days and some bad days, but the bad ones will pass too. You can also improve your trading psychology by giving yourself time. You will not make a fortune on your first day of trading. To create a trading strategy that isn’t affected by market sentiment, you need to invest a lot of time and effort. Despite being unable to completely eliminate trading emotions, you should strive to limit the extent to which they determine your trading psychology.
Possess a great knowledge base and set goals
To overcome negative trading psychology, it is important to know the market inside out as knowledge is akin to power. Setting rules such as the risk-reward ratio, the target and the stop-loss will help a trader remove emotional aspects from the trading process.
Adaptive Decision-making Skills
Short-term traders often have to think fast and make quick decisions, darting in and out of stocks at a moment’s notice. To be successful, traders must possess a certain presence of mind, as well as the discipline necessary to stick to their own trading plans. Emotions can’t get in the way over here and kindly be aware that you are trading with real money.
How can trading psychology be controlled?
‘The greatest enemy of the trader is fear. He who is afraid loses’, is an underlining principle of trading psychology. So, let us examine some factors that affect a trader’s mindset along with pro-tips to deal with them.
Overcome Fear
When traders get bad news about a certain stock or the economy in general, they naturally get scared. Some may overreact and feel compelled to liquidate their holdings and sit on the cash, refraining from taking any more risks.
Overcome Greed
Greed is very difficult to suppress. It is often driven by the instinct to do better, to get that little bit extra. To develop a successful trading plan, traders should develop a rational thought process rather than rely on whims and instincts.
Setting strict rules for oneself
To survive the psychological crunch, traders need to create rules and follow them. A person may also choose specific events, such as a positive or negative earnings release, triggering the decision to buy or sell a stock.
