Here's a quick example of what makes a trading psychology. What makes the most important difference between a 'good' trader and a 'bad' trader? Two folk may start off with the same quantity of money, have the same skill base and enter into the same number of trades over the same period of time. At the end of that time, one may have earned 30 percent more than the other. How is that possible?
It is possible that one could have got too greedy and too alarmed, cutting her winning trades short and letting her losses run, while the other had a firm commitment to stick to her technique no matter what, and therefore was ready to harvest a far greater reward.
When trading, there are two vital facts to remember. First off the 'good' trader respects her established rules, sticking by them through the upswings and the down.
Secondly, the 'bad' trader will let her feelings identify when she trades, which will result in inconsistent trading and final failure.
There are 3 ingredients to trading : a trading technique cashflow management and psychology. The fact is, trading psychology is more crucial than the other 2 factors combined .
What is psychology? It has been expounded that it is the 'science that deals with psychological processes and behaviour.' Feelings such as fear, greediness, vanity and pride all influence a person's trading. The bad trader will allow her emotions to regulate her. For example, when a trader closes out a position too early or too late, she's enabling her emotions to govern her behaviour. She's exhibiting loss dislike, where she is strongly preferring to avoid losses to taking gains. She sees her trades lose, but continues to let them run, hoping against hope for a turn around. Frequently this just doesn't happen, and she loses all she has invested.
Loss dislike is also demonstrated when traders close positions too early. When they see a little profit, they are frightened to lose what they already have, so they close the position out too early.
It's required to act in a counter intuitive demeanour when trading. Following natural intuition, you would expect to take any tiny profit as soon as you make it. Nonetheless this isn't the way to become a successful trader. The successful trader will act counter naturally, and let his profits run. Similarly, he is going to act against his built-in instincts when he sees a loss, and instead of waiting for a turn around, he is going to cut his losses short.
Discipline is what's ultimately needed in trading. When a disciplined approach is consistently taken, that trader will gain confidence. The trading plan is the key to it all, but the trader must have the wherewithal to follow this plan through thick and thin.
Another trap many new traders fall into is attempting to trade multiple markets. This just won't work. You need to choose one market and one pattern, and again, this is counter intuitive. You must endeavour to defeat the one market. Have a trading plan, follow it with discipline, take control of your emotions and you'll noticeably improve your chances of changing into a successful trader. You should also find out more about trading psychology in the process.
No comments:
Post a Comment