What Is Trading Psychology?

Trading psychology refers to a trader’s emotions and mental state. It determines a trader’s success or failure. In simple terms, trading psychology is how you behave in the markets.

If you can fix your behaviour and how you handle yourself in the markets, you can see great improvement. Most traders lose money because of their behaviour and not their strategies. I have published an episode on my podcast titled “The Importance of personal development” because working on yourself is crucial. You have to keep your trading psychology in check at all times, and working on yourself should be an ongoing thing. In this post, I will be tackling 5 ways to help you master your trading psychology. Without further ado, let me get straight to it.

 1. Greed

Most traders struggle with greed; I struggled with greed a lot as well. A trader who is controlled by greed tends to make risky and uncalculated decisions and, as a result, take huge losses.

On a very good trading day, a greedy trader makes a lot of profits but gives it all back to the market and has nothing to show for it at the end of the day. Profits go as far as account history, but they are never kept. If this is you currently, you need to focus on working on this.

2. Fear

Fear is not bad, and it is an emotion that alerts us of danger. Fear is bad if you allow it to control you. As a beginner trader, you will definitely feel fearful. Just like a new driver feels scared to drive on the road alone, a beginner trader feels the same. If you buy a car after obtaining a driver’s license and just park it nicely in your garage because you are scared, you’ll never master driving.

You can only master driving if you drive alone on the road, and even if you can scratch your new car, you continue driving it, and eventually you will stop scratching it as the fear subsides and you get used to driving it.

It is the same with trading; you have to be actively doing it, and that’s how you get rid of fear and gain the necessary experience.

Traders who are fearful are likely to close good trades prematurely and try by all means to avoid risk. You cannot avoid risk, but you can manage it. If you want to completely avoid risk, you should not even think about being a trader. You may like to listen to this podcast episode on how to manage your money.

3. Detach From The Money

Detaching from the money may sound like I am saying do not care for your money. That is not what I am saying; what I mean by detaching is that you should not stress much about making huge profits right away, but rather focus on getting it right even if you break even. When you are too attached to your money, this becomes impossible to do.

I also do not encourage traders to trade with the money that they need for rent, school fees, etc., or even trading with borrowed money.

All these add unnecessary pressure, which may lead to making countless mistakes. As a trader, you want to be as relaxed as possible. If, let’s say, you have R10 000 and it’s your last money, do not fund your account with all of it. Split it in half and use the other half to create an income while you trade with the other half.

You stress less when you have cash flow, and you can then nurture your account and allow it to grow. You attract more money when you don’t stress about it.

4. Keep A Trading Journal

A trader who keeps a trading journal is an organised trader. A trading journal allows you to “take stock” of your trades, plan your trades, stick to your trading plan and also keep track of your progress. It helps you create a roadmap that you can review and see where you need to improve. I have published a digital trading journal; you can get your copy INSTANTLY HERE. 

5. Regret

Regret keeps you unhappy. You always regret missing an opportunity; you regret placing a trade, and you regret closing it. I always tell my mentees that remaining happy is very important.

Be happy when you make a lot of money; be happy when you are not making much; also be happy even when your trade goes against you because, even though you may not control what happens in the markets, you can always control yourself, manage your funds, operate your account like a business and apply basic business principles.

Check out my money management course that will teach you how to manage your trading account like a business and never experience a margin call. Enrol and start learning right away. You can listen to the audio version of this post HERE.

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