The Psychology of Trading

There is an old saying that the market is driven by fear and greed. Anyone that has placed more than a couple of trades will surely have experienced these two emotions. All traders experience emotion. The distinction between a successful trader and an unsuccessful trader comes down to how they deal with that emotion. Let’s look at how these emotions affect a successful trader and an unsuccessful trader in various scenarios.

You go long and the market immediately goes down – you go short and the market immediately goes up. That’s 2 consecutive losses, and you are getting a little ‘anxious’ so you don’t take the ‘next’ trade. Of course, this trade is a winner. Now to make the situation worse, you then ‘chase’ the move, and as soon as you enter the trade it immediately reverses, thus giving you another loss – this is now 3 in a row. Ok, one more ‘try’ – this can’t happen on every trade can it? (more…)


Vision – Although an expectation of total clairvoyance as to future price movement is unrealistic, it is my goal as a trader to assimilate as much information as possible with the goal of playing out scenarios that tie in with each other.

This is not always easy to do. Yet, understanding trading does not occur in a vacuum, and markets do exhibit oddities. You can get yourself mentally prepared to deal with these outlier events. Those who can think for themselves and need not rely on templatized news releases for their ideas usually put themselves in a position to benefit from their forward thinking.

We have heard many times about leaders who saw an industry trend before it happened. This was no accident. It came as a result of their understanding of their field and what could change it for the better. Traders who gain an understanding of how things can potentially play out and factor that into their trading strategy go a long way toward keeping their objectivity when things unfold in a fast and volatile market.

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