Trading Psychology, Discipline, and the Importance of Overall Balance

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Trading Psychology, Discipline, and the Importance of Overall Balance

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Member Since May 09, 2020 15 posts john98 May 12 2020 at 06:03
Member Since Aug 09, 2020 444 posts Imamul May 15 2020 at 11:40
Member Since May 18, 2020 2 posts pancar jack (pancarjack61) May 19 2020 at 06:13

Imamul posted:
To enter Forex market is so much easy. With little amount you can kick off trading at any place. But the main deal is surviving that is really difficult. Because this market is too much volatile and no one can predict the real faction of this market with surely. so we have to pass a long time in here , if we want to get maximal result from here.

I couldnt agree more. First you must survive then with experience everyone can be succesfull in this market because it is very hard to gain constant income but It gives you many opportunity to do

god save the gbp Member Since Aug 27, 2020 774 posts Adribaasmet May 21 2020 at 09:30

pancarjack61 posted:
Imamul posted:
To enter Forex market is so much easy. With little amount you can kick off trading at any place. But the main deal is surviving that is really difficult. Because this market is too much volatile and no one can predict the real faction of this market with surely. so we have to pass a long time in here , if we want to get maximal result from here.

I couldnt agree more. First you must survive then with experience everyone can be succesfull in this market because it is very hard to gain constant income but It gives you many opportunity to do

You are right! It’s very challenging to make consistent money here! Only high-skilled traders can do so.

Member Since Aug 09, 2020 444 posts Imamul May 23 2020 at 09:29
Member Since May 23, 2020 7 posts Javytrader May 24 2020 at 07:39
Member Since Aug 09, 2020 444 posts Imamul May 24 2020 at 09:59
Member Since Sep 19, 2020 26 posts Sublime Markets (sublimemarkets) May 25 2020 at 11:57

Some say that traders who lose the most money, are highly intelligent. So, what causes such big losses?

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Some blame the markets, politics, economic conditions, or even their strategy. Even though all of those might be accurate, one of the most significant reasons for failure is emotion.

In our line of work, acting on emotion leads to disaster. This is why you should always trust your money with people who are able to take emotion out of the equation.

Our experts exhibit mental attributes which help them stay focused on the long-term prospect, even when the short-term seems overly attractive. A successful trader must:

1.Know what to expect
2.Develop and stick with a strategy
3.Know when to trade and when not to trade
4.Be patient
5.Adapt to current market conditions
6.Focus on being consistent in the long run
7.Take reasonable action

Feel free to send us a message if you need any help with your trading. We’re always glad to help people achieve their goals.
You can also check out our facebook page for more valuable content!

SublimeMarkets on Facebook too Member Since May 03, 2020 10 posts Baileyhart May 26 2020 at 06:36
Member Since Apr 18, 2020 862 posts AniLorak May 27 2020 at 18:17

Baileyhart posted:
Trading Psychology. Trading psychology is an important discipline that needs to be studied and understood by anyone who aims toward long-term success in the financial markets. . Become a master of self-assessment and emotional discipline by combing through the educational Forex psychology material below

Perfect! In addition, I seem mediation is the best practice to build a strong mindset!

Trading Psychology & Discipline

There are lots of features and skills traders need in order for them to be successful in the financial markets, and we’ve already written a lot about the most common mistakes among the beginners, as well as among the experienced ones. However, we have not touched trading psychology as it is yet.

The ability to understand the inner workings of a company, its fundamentals and the ability to determine the direction of the trend are a few of the key traits needed, but not one of these is as important as the ability to contain emotions and maintain discipline.

The psychological aspect of trading is extremely important, and the reason for that is fairly simple: A trader is often darting in and out of stocks on short notice, and is forced to make quick decisions. To accomplish this, they need a certain presence of mind. They also, by extension, need discipline, so that they stick with previously established trading plans and know when to book profits and losses. Emotions simply can’t get in the way.

Understanding Fear
When a trader’s screen is pulsating red (a sign that stocks are down) and bad news comes about a certain stock or the general market, it’s not uncommon for the trader to get scared. When this happens, they may overreact and feel compelled to liquidate their holdings and go to cash or to refrain from taking any risks. Now, if they do that they may avoid certain losses – but they also will miss out on the gains.

Traders need to understand what fear is – simply a natural reaction to what they perceive as a threat (in this case perhaps to their profit or money-making potential). Quantifying the fear might help. Or that they may be able to better deal with fear by pondering what they are afraid of, and why they are afraid of it.

Also, by pondering this issue ahead of time and knowing how they may instinctively react to or perceive certain things, a trader can hope to isolate and identify those feelings during a trading session, and then try to focus on moving past the emotion. Of course this may not be easy, and may take practice, but it’s necessary to the health of an investor’s portfolio.

Greed Is Your Worst Enemy
There’s an old saying on Wall Street that “pigs get slaughtered.” This greed in investors causes them to hang on to winning positions too long, trying to get every last tick. This trait can be devastating to returns because the trader is always running the risk of getting whipsawed or blown out of a position.

Greed is not easy to overcome. That’s because within many of us there seems to be an instinct to always try to do better, to try to get just a little more. A trader should recognize this instinct if it is present, and develop trade plans based upon rational business decisions, not on what amounts to an emotional whim or potentially harmful instinct.

The Importance of Trading Rules

To get their heads in the right place before they feel the emotional or psychological crunch, investors can look at creating trading rules ahead of time. Traders can establish limits where they lay out guidelines based on their risk-reward relationship for when they will exit a trade – regardless of emotions. For example, if a stock is trading at $10/share, the trader might choose to get out at $10.25, or at $9.75 to put a stop loss or stop limit in and bail.

Of course, establishing price targets might not be the only rule. For example, the trader might say if certain news, such as specific positive or negative earnings or macroeconomic news, comes out, then he or she will buy (or sell) a security. Also, if it becomes apparent that a large buyer or seller enters the market, the trader might want to get out.

Traders might also consider setting limits on the amount they win or lose in a day. In other words, if they reap an $X profit, they’re done for the day, or if they lose $Y they fold up their tent and go home. This works for investors because sometimes it is better to just “go on take the money and run,” like the old Steve Miller song suggests even when those two birds in the tree look better than the one in your hand.

Creating a Trading Plan
Traders should try to learn about their area of interest as much as possible. For example, if the trader deals heavily and is interested in telecommunications stocks, it makes sense for him or her to become knowledgeable about that business. Similarly, if he or she trades heavily in energy stocks, it’s fairly logical to want to become well versed in that arena.

To do this, start by formulating a plan to educate yourself. If possible, go to trading seminars and attend sell-side conferences. Also, it makes sense to plan out and devote as much time as possible to the research process. That means studying charts, speaking with management (if applicable), reading trade journals or doing other background work (such as macroeconomic analysis or industry analysis) so that when the trading session starts the trader is up to speed. A wealth of knowledge could help the trader overcome fear issues in itself, so it’s a handy tool.

In addition, it’s important that the trader consider experimenting with new things from time to time. For example, consider using options to mitigate risk, or set stop losses at a different place. One of the best ways a trader can learn is by experimenting – within reason. This experience may also help reduce emotional influences.

Finally, traders should periodically review and assess their performance. This means not only should they review their returns and their individual positions, but also how they prepared for a trading session, how up-to-date they are on the markets and how they’re progressing in terms of ongoing education, among other things. This periodic assessment can help the trader correct mistakes, which may help enhance their overall returns. It may also help them to maintain the right mindset and help them to be psychologically prepared to do business.

Bottom Line
It’s often important for a trader to be able to read a chart and have the right technology so that their trades get executed, but there is often a psychological component to trading that shouldn’t be overlooked. Setting trading rules, building a trading plan, doing research and getting experience are all simple steps that can help a trader overcome these little mind matters.

THE IMPORTANCE OF PSYCHOLOGY AND DISCIPLINE IN TRADING

Trading is an enjoyable activity and it can be very rewarding too, but successful trading takes a certain dedication and mindset. If we were to draw the profile of the perfect trader, we would most likely include virtues such as knowledge, experience and more importantly, trading discipline.

Lack of trading discipline is probably the main reason why a good portion of novice traders face losses, especially those who start alone without any guidance. It can be a trap for newcomers to the world of trading, leading to discouragement, which makes them give up and lose out on so many opportunities. Therefore, keeping your temper in check and having the right trading psychology may be vital to your trading success.

Having established that trading discipline is the component that can make or break a trader, let’s go through the most common mistakes that traders make, driven by their lack of discipline and state-of-mind, as well as ways to deal with them and build the foundation for a bright trading career.

THE FEAR OF MISSING OUT

Have you ever caught yourself staring at an expired chart, identifying the now long-gone entry opportunities, feeling like a total failure for not spotting those earlier? How did bitcoin’s big rally before the end of 2020 make you feel?

Did you know? If back in August 2020 you bought 1 bitcoin (approximate worth $5,000) just to sell it mid-December 2020 (approximate worth $19,000), you would have made $12,000 in profit! Now imagine if you had joined the bitcoin craze at its early days when its worth was just a few pennies.

Hindsight is a wonderful thing and we have no way to predict the future. The only consolation is that there is always going to be a new trading opportunity and new entry point. Remember, the market never sleeps.

The fear of missing out on trades can lead you to three things:

1.Over-estimating the importance of entry opportunities, leading to making more trades than you can manage or afford.

2.Holding on to a trade/HODLing on to a trade for too long (Cryptocurrency enthusiasts will know) in the hope that the trend will continue.

3.Disobeying your trading plan, investing more on a trade in hope for higher returns.

It makes sense that a cold streak can easily lead you to the above three, but that could be a mistake. It is better to stay calm and keep your eyes open for the right opportunities and stick to your trading plan and risk management.

Fellow traders may brag about their trading success on your favourite trading forums, but it’s important to remember that everyone has a unique trading journey. Instead of blindly following them, it is probably better to take their trading ideas with a grain of salt and perhaps, trust them only if they confirm what your own research tells you.

RECOVERY TRADING

Every successful trader will tell you that they occasionally face streaks of losing trades, experiencing good days and bad days. It is simply part of the game. What most successful trader[AK1] s will also tell you is that no matter what, they stick to their risk management plan.

Some traders are more risk tolerant than others. It is also common for some traders to raise their risk exposure after they have gained enough experience. But if you catch yourself wanting to invest more after a series of losing trades in an effort to recover your losses, that should ring an alarm bell.

You need to ask yourself whether your decision to raise the risk level is driven by logic or your emotions. Remember, losing might be overwhelming, we have all been there. Simply accept your losses and focus on brand new opportunities according to your trading plan. What is important is that your winnings are more than your losses.

THE GAMBLER’S FALLACY

Let us highlight that the way you trade should by no means be random but based on research. There are tools available that can help you perform technical analysis or forecast the impact of a fundamental event and make educated trading decisions. Having said that, it is only natural to consider probabilities in order to assess the chance of something happening.

The Gambler’s fallacy is the false belief that just because a series of outcomes has been the case too often, it is now the time for the opposite outcome to come up. In the context of trading, gambler’s fallacy happens when a trader is expecting his trade to be successful, simply based on the fact that his previous trades were unsuccessful.

Two things are problematic with this notion:

1.Trading is not a guessing game, the direction of the market is not random — in fact, successful traders tend to make decisions based on their trading expertise and not based on luck.

2.Probabilities do not work this way. Before you flip a coin 50 times, logic tells us that most likely, the outcome will be 50% heads and 50% tails. But if you have flipped the coin 25 times already and the outcome has been 100% tails, that does not mean that the next 25 flips will turn up as heads. In fact, the probability of the 26th flip to turn up as heads, is 50%.

Each trade should be considered as independent from the previous one. Each trade deserves to be studied thoroughly and by no means should you risk your funds on a trade that has anything less than all the fonts to be a champion!

Occasional losses and discouragement are part of the game. The way to your own trading success might take time and it will of course take a lot of practice. One of the best ways to get started is to open a demo account and keep practicing for as long as it takes to feel comfortable. Once you are ready, you can progress to opening a real-money account.

Even the best traders keep a demo account alongside their real account and return to it every time they want to test a new strategy or a new asset class. As long as you are able to stick to your trading plan and keep a clear mindset, you are one step closer to becoming a good, solid trader.

Disclaimer: All data and information provided on this blog is for informational purposes only and does not constitute Investment Advice or Investment Research. In addition, the data and information provided on this blog have not been prepared in accordance with legal requirements designed to promote the independence of Investment Advice or Investment Research. AAATrade makes no representations as to the accuracy, completeness, up-to-datedness, suitability, or validity of any data or information on this blog and will not be liable for any errors or omissions in such data or information, nor for the availability of such data or information. AAATrade will not be liable for any losses, injuries, or damages from the display or use of any data or information provided on this blog. All data and information on this blog are provided on an as-is basis.

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Last updated: 06 May 2020.

© 2020 AAATrade, all rights reserved.

Risk warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82.5% of retail investor accounts lose money when trading CFDs with AAATrade. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. If you are investing in Cryptocurrencies, please note that Cryptocurrencies are high-risk and volatile and may result in the loss of all invested capital over a short period of time; they are not appropriate for all investors. You should understand that that there is no EU regulatory framework governing trading in cryptocurrency products and that in case of a dispute you have no recourse to any regulatory authority, financial compensation scheme or ombudsman.

Importance of Forex Trading Psychology

I’ve often been asked whether trading psychology is really important for a forex newbie or if it’s just overrated. In this old man’s humble opinion, sound trading psychology is what sets consistently profitable traders apart from the rest.

I believe that a person’s ability to handle and overcome stressful situations, like experiencing a drawdown, having a losing position, and managing one’s greed, plays a central role in determining a trader’s success.

If you are not psychologically prepared to handle the stress that comes with trading, chances are that no matter how good your strategy is, you will not be able to execute it properly and will most likely see your account deep in the red.

Just take a look at the Turtle Traders’ experiment run by Richard Dennis and Bill Eckhardt. A group of traders was taught the exact same system, with the same exact risk management guidelines and principles. Some were very successful, while others floundered.

The difference? Trading psychology.

Some of the “turtles” were unable to handle the system’s drawdowns, or closed their trades early and were unable to maximize the best trade setups.

This is very similar to handing over the keys to an F1 car to a student driver and expecting him to carve the racing track like he’s Michael Schumacher.

Even with a supercharged car, the student driver would probably lose a race to Huck’s broken-down Honda Fit as he lacks the mental fortitude to handle high speeds and sharp turns.

At the same time, we can’t overlook the importance of trading strategy. You may be the most disciplined and emotionless trader out there, able to stick to the plan and leave emotions at the door, but you’ll probably still end up in the red if the strategy that you’re following to a T is poor and not profitable in the long run.

The key is to find the proper balance between trading psychology and strategy.

Trading psychology may not be able to turn a losing system into a profitable one, but it can equip you with the right tools to develop a profitable system.

Having the right frame of mind can provide you with valuable insights to tweak your trading approach and get better results. In effect, having the right trading psychology can lead to a better trading strategy.

Likewise, a lot can also be said about the positive effects a successful strategy can have on trading psychology. You may find that sticking to the plan and weathering drawdowns are much easier when you’re trading a tested and proven system.

To become a successful trader, you will need both the right mindset (trading psychology) and the right tools (trading strategy). Without either one, you’re bound to fail.

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