Believe it or not, TRADING PSYCHOLOGY plays the main role in trading or investing.
In order to be successful in your trading or investing journey, you must MASTER YOUR MIND no matter what (It takes time and experience, there is no such a thing of overnight solution).
This is why RULES are extremely crucial in your trading or investing journey to avoid making emotional decisions.
Early stage traders may think this is a joke!
However, regardless of how long you have been trading, if you don’t have the right mindset and trade without a proper trading plan, you will either get slaughtered by the market or surrender to the market or still a losing trader.
Before you start trading, make sure you have a TRADING PLAN and RULES, if you don’t, DON’T TRADE
Type of Emotional Trading
If you’ve realised that you opened a trade based on one of the deadly emotions, close the trade immediately regardless the trade is running profits or losing money. It is considered as an invalid trade. Take responsibility for your mistakes.
Always remember, open a trade based on your trading plan and rules only! NOT BASED ON YOUR FEELINGS!
Never ever keep an emotional trade. If it turns out to be a winning trade, you will think that you are lucky enough to make this money, if it a losing trade, you will hate yourself and probably lose more money.
Identifying fear signs:
- FOMO (Fear of Missing Out). Buy/Sell based on feelings or rumours.
- Was away from the market and placed a trade without a proper plan.
- Neglected risk management, closes position too early without following plan.
- Chasing trades.
- Panic, feeling scared of losing.
- Force a trade.
Identifying anger signs:
- Take a revenge trade
- Feel angry when market goes opposite your direction.
- Get frustrated easily after trades get stopped out in a row.
- Easily annoyed, feel anxious if there’s an interruption.
Identifying hope signs:
- Hoping to get lucky this time.
- Keep holding on a trade that already bypassed your initial stop loss and hoping for the market to turn around.
- Hoping your trades get back to break-even point.
Identifying greed signs:
- Open multiple similar trades by assuming that the market will continue to go according to your direction.
- Increase in position size.
- Continue to chase profits even it hits the take profit point.
- Overtrading, open too many trades at once.
Signs you should stop trading for awhile....
- When you don’t follow your trading rules
- Feeling lost
- Glued to your screen for 24 hours.
- Constantly checking on your trades
- Panic buying or selling
- Trade based on feelings
- Trying to revenge
- Afraid of losing money
It is okay to make mistakes. Most importantly you must be aware of it and take responsibility to change.
How to fix trading problems effectively....
Trading is not about how much money you can make, is about how long can you survive in the market.
You must learn how to survive in the market by protecting your capital.
Remember, consistency is the key to success.
It is very important for a trader to understand how trading psychology can actually destroy your account and dreams if it is not being aware and did not overcome it properly.
There are a few steps and checklists for you to identify your trading problem and fix it:
- You need to take a break from trading. You need to stay calm in order to think properly and deeply.
- Go through each of your previous trade, regardless it is a losing or winning trade. Identify each trade was placed by emotion or rules.
- Write down the reasons and mistakes that you had made on each trade based on the type of emotion trading.
- Set your trading rules, risk:reward, and prepare a trading journey for a new start.
- You may start trading with a demo account for a few months first to get consistency results and ensure all trades are followed by rules. If you want to trade with real money, then you shall place a small lot.
- Place less than 5 trades, only open new trades when previous trades were closed.
- Review your trades. Calculate the winning & losing % rate, not the profit/loss $. Repeat this trading method for a few months until you get a positive winning rate. (Be realistic!)
- Keep learning and strengthen your trading mindset and follow one golden rule “TRADE WITH RULES not feelings“.