Trading Psychology - An Explanation

To learn what trading psychology is can help you understand the seemingly invisible factors that separate the good from the bad traders. We say bad because even though they have the right information and the trend is going their way, they still end up losing in their stock trading strategy or whatever market they may be in.

For the purpose of our explanation with regards to the psychological aspect of market trading, let us assume that we have two very identical men who are into trading. It does not matter if you think of them as twins or not, what is important is that they have the same trading background, the same training, the same tools and information regarding the market and even the trend they are interested in. That they both have everything the same when they need to do trading.

And now for the sake of our explanation, we will jump forward to a few months ahead after the two traders have started doing their trading. Also since we have stated that the two have practically the same on everything that they need to get on with their trading, including how they learn trading, that we can safely expect that they will have the same achievements with their trades. But the thing is it will never be the same.

One of them ended up making great gains from his trading while the other one simply ended up in the losing end. So how come they achieved completely different results if they both have the same tools, strategies, systems, and information regarding their trading activities?

The answer simply lies with trading psychology. This is because we have to take into consideration the uniqueness of each individual, even when it comes to trading. It is therefore important for us to understand that each of these traders had their own train of thoughts when they made decisions with their trades as well as putting their emotions into it.

For instance, if they are at the same position in a market and the trend is the same, one of them might have had some doubts with the market and decided to bail out, saving as much money as he had already put into it. On the other hand, the other guy decided to stay with the trend and was handsomely rewarded in the end. The emotions associated with the decision to get out or to stay with the market is something that no one can easily pinpoint or explain about every trader's process of thinking.

This is the instance where we can say that the good trader and the bad trader definition comes into play. Because the good trader would stick to his plan and use all the tools and data that he has to guide him with his decisions. On the other hand, the bad trader had let his emotions to take over him and totally exit the market.

So what you should remember here is that although it is important that you learn to trade the right way, there are still certain factors that are never easy to understand even if you have the best trading system in the world.