Understanding Trading Psychology for Beginners

When you are trading in the forex or any other financial markets, you usually gravitate toward the charts and the fundamentals. However, these are not the only way to go about the market. What you should realize is that trading psychology also plays a crucial role in the market’s movements.

Factors that Affect Your Trading Psychology

There are many different factors that can affect your trading psychology. However, there are some general factors that can make or break your trading career.

Learning about these factors will make you aware that you can be driven by them when you’re making your trading decision.

Here are those factors.

Fear

Fear is by far the realest and most vicious emotions that you can probably face. For example, if you are too fearful to make a trade, you probably won’t make that trade. That means you can’t make a profit from that trade.

When you let fear take over the way you think about your trade, you’ll probably end up with very small profits at the end of the end; much smaller than what you could have gotten if you weren’t too fearful to make the trade.

Greed

Greed comes next to fear. As a matter of fact, it can be said to be closely connected to greed. In simple words, greed is the fear of missing out on the profits that you don’t have yet. It’s also the fuel to the desire to make huge trades and even bigger profits.

Greed typically rears its ugly head when your trade is doing well. Maybe three consecutive winning and profitable trades have boosted your confidence too much.

And because you feel too overconfident with your investing strategy, you start to make aggressive trades and before you know it, you’ve already incurred huge losses.

Ambition

This is something that most traders have and share. When you step into the world of trading, you do so with the intention of succeeding. Therefore, you have ambition—high hopes that you will become a profitable investor.

The downside to having too much ambition is that it can lead you to make bad decisions. It can make you feel bad then, particularly if you let your high ambitions become too unrealistic to be achievable.

Why You Should Consider Psychology

One of the easiest ways to improve your risk tolerance and therefore become a better trader is to understand your trading psychology.

In other words, you should be able to remove all emotion from your trading. The goal here is not only to become successful in the short-term, but to be consistently successful in the short term.

And success in this sense means you can live off of trading. To do that, you have to set up some rules that are not susceptible to the changes in your own emotion.

At the same time, you should have the discipline to follow such rules. If you have a plan, be sure to stick to it.

Lastly, you should have the ability to take yourself out of the market the moment you realize that your emotions are getting the better of you and controlling your decision-making process.

Leave a Reply

Your email address will not be published. Required fields are marked *