Trading Systems

8 Reasons You Should Invest in Trading Psychology

1. It will build your strength

You are most likely to find trading success by exploiting what you are already good at. Your trading niche will take advantage of distinct competencies that you already possess and already employ in other facets of your life.

2. There is much in the trading world you will need to filter out

If trading is indeed a performance field, there is no reason to believe that elite the performance will be found in better indicators, faster or more comprehensive software, newsletter tips, or coaching advice. Only a directed developmental process will allow you to internalize market patterns and act upon these with confidence. Better golf clubs will not turn a duffer into a pro; the finest wrenches will not make one a master mechanic. You will hear many promises of quick rewards in the trading world, but these cannot replace training.

3. Peaks and troughs in trading performance are likely to be the norm rather than the exception

If markets indeed change their patterns of trending and volatility over time, traders never really reach the end of their learning curves. There are apt to be periods in which market cycles change and the new patterns have not yet been internalized. These are also likely to be periods of drought in traders’ profits. What is important is to survive these performance troughs through proactive risk management, a prudent savings plan, and a determination to not traumatize oneself and thereby preclude fresh learning. An excellent predictor of long-term trader success is the ability to prepare for inevitable lean times when the earnings are good.


4. Your emotional experience in trading will reflect your success in structuring your training

Properly structured training will generate sustained experiences of learning, mastery, and confidence. They will contribute to a sense of efficacy. These positive emotional experiences are precisely what you need to be able to handle the inevitable stresses of risk and reward as you increase your size.

Properly configured training will also serve as training to enter and sustain the flow state in which we activate our brain’s executive functions and will make our best decisions.

If your learning experience is under structured, you will be at greater risk of emotional frustrations and conditioning effects that disrupt coping. In sum, my best advice is to truly treat trading as a profession if it is to be your career. (Tweet this)

A profession is a field that requires extended education and specialized training. It is a field that demands that you be responsible and that you execute that responsibility with professionalism. Trading can be a wonderfully challenging and rewarding activity, but it can also leave the unprepared emotionally wounded and financially bereft. Don’t be too quick to put your account at risk in hopes of making money now. Take the time to learn and build a career that will sustain you for a lifetime.

5. To practice Real Life vs. the Trading Floor

Even if you’ve been a calm, analytical guy or gal most of your life, don’t assume that you’ll be able to stay relaxed on the trading floor. The pressure and stress you’ll face will be far greater than anything you’ve ever experienced – especially if you’ve only been a student before. Nothing could be further from the truth – to see why, let’s walk through the emotions of a trade.

6. To Understand the 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.


7. To Control Greed

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.

8. To come out with 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.


Psychological Challenges Trading
Trading Psychology: How to Think Like a Trader
The Importance of Trading Psychology

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