The Importance Of Trading Psychology

Think about what a successful trader's life may be and you will probably think of riches

, independence, and freedom to do more meaningful projects while still continuously creating income through trading. While this may not be further from the truth, it is however, not always the case. Because even though there are many traders who have tasted success, there are also traders who have lost and probably even had gone broke. Whether good or bad, these traders have all experienced what is called the trading psychology. And to think that it is not completely dependent even if you have the best trading systems in your trading arsenal.

What is this trading psychology and why does it seem to play a major factor in the success of a trader? To define it as simply as we can, it refers to the perception or emotional change that a trader experiences or goes through while dealing in any market. In most cases, the money involved in the trading actions is the trader's own. Therefore you can experience the different emotions and thoughts that a trader feels whenever he gains or losses in any single trading day.

But what is this trading psychology and why does it have a great impact on the success of a trader? That even if he has the best trading systems under his belt, it may still not be enough to net big earnings for himself. We can define this trading phenomenon as the perception change experienced by a trader while working within his market. Usually the money that a trader uses in his dealings are his own and therefore the gain or loss of it will always have a major impact on him. You can just imagine all the emotions that a trader feels whenever he needs to make a big decision in his trading.

Naturally the first trade is crucial because it will help teach the trader on the basics, including how to work out a trading plan, and on how to best handle a trade, whether the result is beneficial or not for him. The stakes are even greater if the money involved is his own savings. This is because he will feel greater attachment to the money or stock or whatever it is being traded. When this happens, his thoughts or decisions might be unstable and may not be the best approach for that particular trade. Lost opportunities and trading mistakes are therefore common at this stage.

Another instance that a trader might experience a piece of trading psychology is when for a long period of time he has been actively trading in a specific market, and in high probability, has been making great gains from it. And then it happens. The numbers are not so good anymore. Everything seems to be going down, slowly but surely. The normal thing or the quick thought of anybody would be to make a quick trade exit, at least while he can still make even a little profit. But due to his pride, his ego, or just plain nostalgia that he has for that market, he prefers to hold on. Which is a good thing if he knows that the market would improve eventually. But other traders who have gone through this have lost considerably.

As a parting note, trading psychology is a fact that which all traders experience. Now how to handle your emotions, your thoughts and ideas can make the big difference in any trading decision that you will make. Perhaps there is no better trading tip than fully understanding the psychology behind it all.

by: Reece Mathews.

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