It is about time to improve your trading psychology to better shape your success in trading. Now that you have mastered the basics of trading, you need to spend time building strong psychological habits. These habits will help you succeed in your trading endeavor.
While technical analysis helps you find profitable opportunities and risk management allows you to limit your exposure; trading psychology ensures that you constantly maintain the winning mindset.
Basically, trading psychology covers all aspects of your character and behaviors that influence directly or indirectly your trading actions.
In this article, I will discuss 7 trading psychology tips that will help you in your trading endeavor.
So without further ado, let’s get started!
Tip #1: Take it Easy Pal!
If you are a novice trader seeking to understand how the forex market works, the whole experience can be overwhelming at the beginning.
This is why it is crucial to work on your psychology from the very start of your trading endeavor.
Perhaps one of the most important things to keep in mind is to simply take it easy. It can be tempting to use all technical indicators at once but you run the risk of overdoing it and feeling burned out later on.
Stick with what you’re comfortable with and adjust your trading system as you go.
Tip #2: Developing Good Trading Habits
Most professional traders credit their achievements to good trading habits, which can be developed over time through a solid daily routine. Once those habits are ingrained in your processes, discipline and proper decision-making can become second nature.
Habits take time to develop. For instance, becoming a morning individual doesn’t happen in an instant. You have to get used to waking up earlier on a regular basis before you get the habit of becoming an early person.
As with trading, you have to repeat certain tasks daily in order to turn them into habits. For some, this involves starting the day by going to the gym, reading up on economic updates from last night and checking the calendar for any upcoming news events.
From there, trading setups can be identified using either technical or fundamental analysis or both depending on one’s trading approach of analyzing the markets.
After that, trade review and journaling must be done before ending the trading day.
While a few might find it too tedious to repeat every single day, remind yourself that you may reap longer-term advantages in being able to develop the right habits.
Tip #3: Control your Emotions
Another aspect of trading psychology is to help you stay on top of your emotions. After all, we are human and we can’t help but on occasion give in to poor decision-making when our minds are clouded with fear or greed.
The trick is to maintain an objective mindset to stay focused on what the market is telling you as opposed to letting emotions cloud your judgment.
This particular skill takes time and dedication to master and even top traders can still be too emotional sometimes. It is important to constantly remind yourself to acknowledge and isolate these feelings while trading.
Tip # 4: Stay Disciplined
Staying disciplined is going hand in hand with trading psychology. It enables you to stick to your trading system and risk management rules.
After all, it may be tempting to deviate from your plan when the markets are going out of control but with discipline, you should be able to make the right decision at the right moment.
Lack of discipline can also lead beginners to overtrade and overleverage their accounts.
For some, this could be a result of a winning streak that makes them overconfidence and neglect all about trading discipline and proper execution.
Overleveraging might also be a problem if one hasn’t mastered the right position sizing and risk management techniques.
Tip # 5: Keeping a Trading Journal
For many, the idea of keeping track of every single trade appears to be a tedious job.
Don’t get me wrong, it it a tedious job!
But in reality, keeping track of your trades can help achieve trading consistency and long-term profitability.
Here’s why you should keep a trading journal and its benefits on your trading psychology.
A complete trading journal includes details about your trades, such as entry/exit prices, lot size, and a commentary section. Don’t forget to write down your state of mind during the day for each trader you place. This will help you find the reasons behind your losses. When you’re done trading, it is time to go over your trading journal to evaluate your performance.
Your job is to look for mistakes you made and figure out how to fix them to improve your trading. For instance, if you find yourself placing tight stops, you can adjust your risk-to-reward ratio by using an ATR indicator. The ATR will help you calculate the right stop loss for your positions.
By keeping track of your trades, you can get better insights into how your emotions influence your trading performance.
Tip # 6: Take Advantage of Demo Trading
Beginner traders are regularly recommended to trade with a demo account before risking real money on a live account. However, there are many who question whether this step is necessary as demo trading has several differences with live trading.
Demo trading is a good way to practice your newly learned trading skills without risking real money. It is also an effective technique of testing a newly developed strategy by monitoring its results before making adjustments.
While demo trading doesn’t precisely reflect the emotions and stress involved in live trading, here’s an approach to make the most out of this experience.
You can connect your demo account to a social trading network so that traders can give you feedback. From there, you can be more conscious of your decision-making and you can apply the same kind of self-assessment when you are trading live.
Bear in mind that the temptation to give in to fear of losing or greed is much stronger when real money is on the line. It is essential to learn how to manage your emotions on a demo account before emulating the same process on a live account.
Tip # 7: Learn from Your Losses
It is very important to review your trades in order to determine what went wrong. It is crucial to keep a trading journal next to your computer where you write down all your trades. Later on, you can review them to pinpoint any mistakes or bad trading habits to avoid in your future trades.
I agree that reviewing your losses can be painful to some traders but the benefit you get from it is worth the pain. Remember that experience is the best teacher. Your losses can be a good opportunity to learn from them and improve your trading so that you won’t make the same mistake again.
Most losing trades stem from either a completely wrong market analysis or lack of discipline. The first one may be easier to fix as it could simply require a better analysis of the current market conditions. On the other hand, the second one could take time to develop as it requires building better trading habits.
Experiencing a drawdown can be detrimental to your trading psychology. The best thing to do is to take a break from trading. You simply turn off your laptop and take some time off to clear your mind and collect your thoughts.
While losing money can cause more damage than good, it can also be an excellent reminder of the importance of sticking to your trading plan.
Learn about the 7 Common Psychological Challenges in Forex Trading!
What makes trading psychology an interesting subject is a fact that it is a constant learning experience. While mastering the basic techniques of trading is achievable in a short time period, trading psychology takes a long time to master and even the pros do need a little guidance each now and then.
It doesn’t matter whether you are a beginner or an advanced trader, you can always benefit from trading psychology tips to maintain your overall trading performance as a trader.