Trading Psychology: A Beginners Guide to Mastering It

Trading psychology is important. Successful trading, effective fundamental and technical analyses are undeniably indispensable, but sadly some people overlook the psychological aspect of it.

While your ability to analyse the financial markets can help you locate profitable opportunities, knowing how to manage your emotions enables you to make sensible decisions and maintain a strategic mindset.

Mastering your trading psychology can be as challenging as making accurate predictions about price movements. To help you get the hang of it, we’ve put together a mini guide that will hopefully make your journey to profitable trading smoother.

Before we get started, don’t forget that finding a reliable broker to trade with is equally vital. Exness forex trading products boast wide spreads and an impressive variety – perfect for both beginners and seasoned traders.

What is Trading Psychology?

Trading psychology refers to the state of mind and emotions of a trader. For example, a trader can experience anxiety, fear, anger, greed, excitement, disappointment and impatience when navigating the volatile financial markets.

It is absolutely critical to manage these emotions when you are trading. After all, your mind determines the actions you take when dealing with vigorous price movements.

Allowing your emotions to take over may cause you to make poor trading decisions. For instance, greed may stop you from closing a trade you should have closed earlier as you want more than what you have already made.

Fear, on the other hand, can drive you to close a position which you should have kept open. Without the ability to overcome emotional trading, even a perfectly put together trading strategy is unlikely to lead you to success.

Read on for our list of tips and tricks on how to develop strong psychological habits.

Develop a Plan

A powerful way to keep your trading psychology under control is to create and adhere to a trading plan.

A well developed plan can effectively remove your emotions from your trading process. Establish rules about when exactly to open a trade, and set your profit targets for each position you are opening. Write these down and try not to deviate from them.

Building a trading plan allows you to think ahead of time and stay rational. Whenever you feel like your fear, greed or anger is creeping in, have a look at your trading plan and stick with sensible actions.

Keep a Journal

Documenting your trade history gives you a clear picture of your trading behaviour as well as your state of mind during each trade. This important when it comes to trading psychology. In your trading journal, drop down details about your trades, including the traded assets, the date and time of each trade, entry and exit prices, the direction of the trades, lot sizes and your profits and losses.

You can also create a commentary section and record your emotions when executing each trade. Studying your trading journal is great for analysing your trading performance and its relation to your psychological state. It gives you valuable insights into what causes your success and failures. It will also help you figure out to what extent your emotions are impacting your trading results.

By going over your trading journal from time to time, you can gradually adjust and optimise your trading strategy. It is also immensely useful in maintaining emotional awareness.

Don’t Forget to Take Breaks

Taking regular breaks from trading is extremely beneficial for your trading psychology. Trading intensively can be quite stressful, and you won’t be surprised to find yourself under a lot of emotional strain. Your irrationality may try to take control especially after a series of unsuccessful trading sessions.

If you feel overwhelmed by disappointment, switch off your screen and allow yourself to take a break from the trading terminal. This can give your mind some room to breathe and keep it calm.

Stay Present-minded

It’s easy to fall into the emotional trap of dwelling on the past. After experiencing a string of losses, your brain may start to trick you into believing that your next trade will also be a losing one. This may trigger the Fear of Missing Out (FOMO) and affect your trading performance.

The truth is, trading opportunities are endless, and your past trades do not determine the results of your future transactions. It is therefore important to remain present-minded while focusing on your future trades.

When It Comes To Trading Psychology, It’s Okay to Lose

We all enjoy the feeling of winning, but the reality is that no one can become a consistently profitable trader overnight. It may take months or even years of learning and practicing before you can consider trading full-time for a living. For the majority of novice traders, losing is almost inevitable at the beginning of their trading journey.

Starting off with the mindset that you have to be profiting from the first trade you open is likely to increase your risk of losing. Trading will only become stressful if you start imposing unrealistic expectations upon yourself. You may end up making more mistakes, causing you to lose even more money.

View your losing trades as opportunities to learn instead of getting angry or upset about it. Identify the mistakes you made, and think about how you will approach the markets differently next time.

I hope that you find this insight into trading psychology useful. Feel free to comment below.

Watch this space for updates in the Hacks category on Running Wolf’s Rant.