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Improper Trading Psychology

  
  Education
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How do you know you have an improper trading psychology?  Here are a few things to look out for:-

1. Feeling too much stress
2. Successful ‘paper trading’, but not successful when trading the real markets
3. Getting mad or too joyous, depending on your trading outcomes or results (excessive highs & lows)
4. Feeling fear
5. Can’t ‘pull the trigger’
6. Fail to exit trading positions at stop loss points
7. Exit trades to relieve anxiety
8. Impulsive trading, etc.

When ‘paper trading’, you are apt not to feel the psychological impacts of real trading.  Thus, ‘paper trading’ will not generate most of the above psychological feelings.  However, when making the transition from ‘paper trading’ to real trading, the psychological issue may be felt and have to be dealt with just like when you learned the skills of your trading system. 

When you hear that trading is both an ‘art’ and a ‘science’, it often refers to the combination of psychology and feelings, with that of a technical trading approach.

In order to be successful, the psychology has to be mastered and managed.

FEAR

  
  Education
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Fear is not always a bad thing, though. In fact, for traders, feeling fear is not a problem, as long as they don’t panic and allow it to drive them out of or in to trades.

Among the fears traders face:

  • Not making enough money in these huge market moves
  • Missing out on big trades
  • Getting caught on the wrong side

At times like this, top traders see opportunity when others crawl into a hole because they are frozen by their fears.

Traders who keep their cool make money from the fear (i.e. shorting oil). Others keep their head and cut positions so they don’t get blown up (Greece and the ripple effect). Still others are waiting patiently for the moment to strike, like a sniper.

So how can all traders think like the top traders when it comes to fear?

  • Lay out the data and look at it from an objective point of view.
  • Pay attention to where the disconnects are because others are trading based on fear.
  • Keep positions smaller with wider stops; be ready to get bigger quickly the moment the uncertainty starts clears up, which it always does.
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