subject: Psychology of Trading [print this page] Psychology of Trading Psychology of Trading
Trading Psychology
The markets are driven by a heady mix of fear and greed. Those who hold positions in stocks, commodities Forex or whatever are fearful they will lose money or lose their paper profits whilst greed drives us to make ever bigger trades or investments whilst we ignore the downside.
Trading psychology is more accurately described as the psychology of each individual trader, thousand of whom make up the entire market. Fear and greed are two of our strongest emotions, take us out of our familiar comfort zone and our rational mind is quickly overtaken by the unconscious flight or fight response that is carved deep in our DNA.
Traders, who survive beyond a few months, soon realise that they are prone to making endless mistakes. These trading psychology tendencies kick in as, once we are making or losing thousands of dollars - which is usually so much more than we are familiar with in a normal' job. As traders, we come to realise that out subconscious is not always allowing us to do the right thing so we have to learn coping strategies or we will join the long list of those who quit the trading game.
How to counteract these trading psychology mistakes:
Get to know your sub conscious mind, whenever you do something that appears out of character, that's your sub conscious mind taking over!
Create or find a set of trading rules that work in different market conditions
Reinforce the rules by repeating them over and over and then always apply them.
Go back over your trades, particularly your losing trades, and check if you broke any of your trading rules.
If so, think through the reasons why you did and resolve to always follow your rules.
These are just some of the ways in which a trader can improve. There are many more that involve control of the mind and thought processes that seek to eliminate trading psychology mistakes. You can find out more about these by
