The Basics Of Trading Psychology

When you think of traders you think of these people dealing with numbers and non-stop trading action either on the floor or electronically. In this day and age it is often the latter. While it is true that there has been a lot of traders who have experienced great success, there are also those who have gone broke and left the trading world, no matter what trading systems they used. The latter are often the victims of poor trading psychology.

What is this trading psychology and why does it seem to play a major factor in the success of a trader? To define it as simply as we can, it refers to the perception or emotional change that a trader experiences or goes through while dealing in any market. In most cases, the money involved in the trading actions is the trader's own. Therefore you can experience the different emotions and thoughts that a trader feels whenever he gains or losses in any single trading day.

Trading psychology, although it affects all traders, would affect the first time trader most of all because he simply does not possess enough experience on how to best get in and out of a market or how to react to the results of his tradings. Even if he had set his trading goals, no matter how realistic these can be, problems and misfortunes may arise because the market is always volatile and unpredictable. The best trading systems would be rendered worthless if the trader does not know how to balance his trading techniques, emotions, and gut feel whenever he is active in a market.

The initial instance that a trader would usually get a taste of the actual trading psychology is when he makes his first ever trade and if he is using his own money. He tends to become indecisive on what he should do next and that's where he often makes mistakes or just miss otherwise great trading opportunities. However, having a trading plan set into place would have surely helped.

Another instance that a trader might experience a piece of trading psychology is when for a long period of time he has been actively trading in a specific market, and in high probability, has been making great gains from it. And then it happens. The numbers are not so good anymore. Everything seems to be going down, slowly but surely. The normal thing or the quick thought of anybody would be to make a quick trade exit, at least while he can still make even a little profit. But due to his pride, his ego, or just plain nostalgia that he has for that market, he prefers to hold on. Which is a good thing if he knows that the market would improve eventually. But other traders who have gone through this have lost considerably.

Understanding how a trader's mind works is a great trading tip. It is very important so you, as a trader, can properly react to any changes in the market and make the best trading decisions. Trading psychology is broad and complex but just to learn the basics is often enough to make you a better trader.