Trading psychology refers to the emotional aspects of trading. As a trader, you will often have to think and analyse quickly, and have the discipline to stick to your trading plans. To do this effectively, it’s important not to let emotions get in the way.
Here’s your guide to trading psychology!
What are the four key emotions you should aim to avoid when trading? Find out on our blog, Trading Psychology: The Psychological Journey of a Trader.
What is trading psychology?
Put simply, trading psychology refers to the emotional mindset of traders - whether that’s feeling composed or anxious. While trading, it’s crucial you remain calm, patient, focused and disciplined, not letting your emotional state affect your work.
Emotions like greed or fear can play a huge role in the trading process, and can easily get in the way of making profit - for example, greed causing you to take too many risks, or fear preventing you from following an upwards trend.
Your mindset is as important as your trading strategy itself, so it’s important to keep an eye on this as you work.
9 trading psychology quotes
Want some words of wisdom from the experts? Here are ten trading psychology quotes and some key things to remember while trading…
“Money is just something you need in case you do not die tomorrow. Let this be a reminder for you not to obsess over profits and losses. In whatever you do, strive for enjoyment, focus, contentment, humility, openness... Paradoxically (and as an unintended consequence) your trading performance will improve significantly.”
“A peak performance trader is totally committed to being the best and doing whatever it takes to be the best. He feels totally responsible for whatever happens and thus can learn from mistakes. These people typically have a working business plan for trading because they treat trading as a business.”
Van K. Tharp
“The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading… I know this will sound like a cliché, but the single most important reason that people lose money in the financial markets is that they don’t cut their losses short.”
“In order to succeed, you first have to be willing to experience failure.”
“Learn to take losses. The most important thing in making money is not letting your losses get out of hand.”
“When you learn to let go of the need to be right, being wrong gradually lose its power to disturb you.”
“Reaching any goal in trading requires specific domain knowledge and technical skills. But then, after that, it's all mindset management. Yet most people ignore that —they automatically think they have that last part all figured out, and it's a mistake.”
5 day trading psychology tips
So - how can you manage your emotions while trading? Here are some top day trading psychology tips to help you…
Monitor your emotions
It’s important to recognise when you feel an emotion creeping up on you to avoid it impacting your work. In the face of loss, how do you react? What calms you down if you’re feeling frustrated or worried about a particular trade? Understanding the emotions that usually follow making a loss and learning how to deal with them in the right way for you are essential to managing - and strengthening - your mindset.
Learn from the experts
The more you trade, the more you will become familiar with your own emotions and how to manage them. Whether you have years of experience under your belt or are just starting out, there are always things to be learned from other traders - especially the way they manage their emotions. If you know any traders with years of experience, ask them: how do they deal with losses? How do they manage difficult emotions when trading?
Have you ever found yourself in a losing position, selling the trade and making a loss - only to find that the price starts to rise again and you miss the entry point? This is a familiar situation for many traders - and patience plays a key role here. Impatience can cause you to enter or exit a trade at the wrong time, therefore increasing your likelihood of making a loss. So: don’t act on impulse - wait for a setup to fully form before you trigger your trade!
We know this is easier said than done! Fear, much like greed, can easily cause errors in judgement and can increase the risk of loss. Losses are an inevitable part of trading and the longer you trade, the better you will become at managing your emotions in the face of loss - so practise is essential. Don’t let fear shape your trading decisions - this is what your strategy is there for!
Trade for the right reasons
It’s hugely important to question your motivation for trading. It goes without saying that everybody hopes to make a profit - but greed is a key thing to watch out for! Greed can be the sole reason behind severe losses, so make sure you’re realistic in your expectations when you’re just starting to trade. Making profit can take a long time - so you’ll need plenty of patience.
Hearing about others’ successes in trading can be a great source of inspiration to continue with your own journey. Read a selection of the best ones here!