Why You Need To Master Trading Psychology
The number one goal of all traders should be to master trading psychology. Mastering trading psychology will allow you to control your thoughts and emotions while trading. By controlling your thoughts and emotions, you will be able to execute trades without any issues.
So many things in the market can influence your trading if you do not learn how to master trading psychology. You will need to learn how to overcome emotions associated with fear and greed. Once you overcome this obstacle, the rest is easy.
In this post, you will find 13 tips that you can use to master your trading psychology, thus increasing your success as a trader. When your head is clear, the only thing you will be focused on is your trade. Your analysis will be rational and uninfluenced by noise of the market.
It’s time to dive into our list of the 13 tips to master trading psychology!
1. Approach the Stock Market with the Proper Mindset
Other areas of our lives teach us this, but it applies in trading as well. You need to approach trading with the proper mindset. Approaching the market with a negative mindset will destroy your chances of being a successful trader. You might as well donate your money to charity at that point.
When you approach the market with a negative mindset, all you are doing is convincing yourself that you will lose. How can you expect to be successful when all you do is think about not being successful?
Just be positive.
Being positive will minimize trading anxiety. You need to come into the market with a winning attitude. Believe that you will make money. Feel it. Will it into existence. Do not doubt yourself. You will be successful.
This may sound corny, but give yourself a little pep talk before you begin trading. Wake up a little earlier so that you have time to get your head straight. Do this when you are done with your morning market research. Quiet your mind and tell yourself exactly how you expect the day to go. Tell yourself that no matter what happens during the trading session, you will still come out as a winner.
2. Accept the Uncertainty of the Stock Market
Listen very carefully when I say this- you will never master trading psychology if you cannot accept the fact the there is no level of certainty in the stock market. You will be on your way to mastering trading in general once you understand this.
Anything can happen in the stock market at any given time. The stock market can go from being up to being down in a matter of minutes. Indexes can cycle between up and down all day long.
Everything can be pointing to positive things and then one world event happens and ruins everything. That’s right- one thing can take down the market in seconds.
Nothing in the market is guaranteed. This is why mastering trading psychology is so important- you need to be able to process and react to these changes as fast as possible with no interference from emotions.
3. Accept the Risk
Now that you know that the market can do anything at any given moment, you should understand that a great trade can turn on you quickly. You need to be mentally prepared for this. Know that every time you execute a trade that there is chance it will not work out.
Know that losses are inevitable due to risk caused by market uncertainty.
You cannot go into trading expecting to win every time. Believing that you cannot lose a trade will destroy you when losses do occur. It will shake you up at your core. You will lose confidence and you will begin to second guess your trading abilities.
The worst that this can do to you is cause you to abandon your trading plan and trading strategies because you lose confidence in them. Many new traders have this issue and that is why they jump from strategy to strategy until they eventually just give up on trading altogether.
If you go into trading with the understanding that you have a good chance of losing as many times as you win, you are less likely to be affected by losses. Your confidence will remain intact and you can continue trading as you normally do.
4. Be Positive
Everyone says this for every situation, but it also applies to trading. Be positive. Know that no matter whatever happens while you are trading, it is a learning experience. Your experiences in trading, whether good or bad, combine to transform you into a highly experienced and successful trader.
If you get upset with yourself for making a mistake, you are not being positive. Remind yourself that it is okay to make mistakes because mistakes help us grow. How many times do children fall while learning to walk or ride a bike? A LOT! What do they do when this happens? 9 out of 10 times they happily get up and try again. Learn from this and apply it to your trading.
5. Have a Trading Plan
You simply cannot trade without a trading a plan. Having a trading plan will allow you to trade in a systematic way that eliminates most of the thought process, thus eliminating most emotions.
A trading plan is simply a strict and precise process you follow every trading session. This plan will cover almost every aspect of the trading session. You may also need to come up with trading plans for different market situations. For example, you may need a plan for trading in a bullish market and then a different plan for trading in a bearish market.
When you create your trading plan, you need to include everything. You have decide how you will approach the market, what you will look for to trade, what setups you will be looking for, where to take profits, and where to cut losses.
When you have your trading plan, all you need to do is execute it. No thoughts or emotions required.
6. Be Disciplined
Being disciplined is perhaps the most important step you need to take to master trading psychology. You will not master anything if you are not disciplined. If there is no order, there is no success.
A disciplined trader will always follow their trading plan 100%. They know that their trading plan is the way that it is because it works. Not following a trading plan means that you do not trust the process that YOU created.
What good does that do for your thought process if you are telling yourself that you do not trust yourself? You created a process that you know works, so stick to it.
7. Always Learn and Increase Your Knowledge
Your greatest weapon against the market is knowledge. The more you know, the better off you will be. You need to obsess over learning how the market works. Read and watch videos on everything you can access. The market is always changing, so you should always be learning to keep up with these changes.
If history of the market has taught us anything, it is that cycles come and go. If you know how to trade in all of these types of markets, you are already ahead of the game.
Use your spare time to research the market. Study the past behavior of stocks. Learn how they react to certain things. Start to see the patterns. See if you can apply the things you are learning about.
8. Learn Different Trading Strategies
There are so many different trading strategies that exist. Each strategy approaches the market in a unique way. Every trading strategy also appeals to certain trading personalities. Some strategies are for the conservative trader, some are for the aggressive traders, and some are for the serious risk takers.
It is important to to learn all trading strategies because that is the only way to find out which one is best for you. Most traders think that they know their trading personality. Most traders think wrong and then wonder why they get so emotional while trading. It’s because the trading strategy they chose is not compatible with their trading personality.
The best way to find which trading strategy is best for you is to learn all of them and try them all out. You do this by either paper trading or using an on-demand feature (most trading platforms offer this option). While you are practicing applying each strategy, if you are noticing that you are getting frustrated or are consistently having an issue, that strategy is obviously not a good fit for you.
9. Practice Using Your Favorite Trading Strategy
Once you find that the strategy that fits your trading personality, you must practice until you know your strategy inside and out. You must get to the point where you “feel” the market. You will know you have perfected your trading strategy when you can recognize a trading setup at a quick glance and execute it with little thought.
How do you get to this point? Same way you found the strategy that was best for you- paper trade or use the on-demand feature. This will train you to learn how to apply your strategy in real-time. The more you execute your strategy, the easier it will be to use it.
The whole point of learning your strategy in this manner is to bypass having to think about the trade. If you think too much at any point in the execution process, you are likely to be influenced by emotions and then mess up.
10. Do Your Own Research
Never listen to trading tips from anyone. Let me repeat that: never listen to trading tips from anyone! If you are going to listen to trading tips from someone, you might as well just give them your money and let them trade for you. It’s the same thing.
When I say trading tips, I am referring to people telling you what they think a stock is going to do next.
I would also be cautious when people give you advice on how you should use your trading strategy. After all, you picked your trading strategy based on your trading personality. You have also practiced using it over and over again. Do not let someone tell you to change your strategy. Their recommendations are based off of their trading personality, not yours.
The best thing to do when someone gives you any type of advice is this- look into it yourself. If someone gives you a hot stock tip, investigate it in an unbiased way. Do not just blindly follow. The same is true for advice on your trading strategy. Look into it. If you are interested in giving it a shot, practice using a tweaked version of your trading strategy.
You never know, the advice giver may be giving you very useful information. Just make sure you look into everything yourself.
11. Keep Track of Your Progress
The best way to master your trading psychology is to keep track of your progress as a trader. Tracking your progress not only lets you see if your efforts are paying off, but it also allows you to see the areas that you need to focus on the most.
Seeing your progress is also a major confidence booster. Seeing how much you are improving will make you more confident. You will begin to trust yourself and your decisions while trading. When you are more confident in your trading abilities you can execute trades flawlessly.
12. Keep a Trading Journal
The best way to keep track of your progress is with a trading journal. All successful traders swear by keeping trading journals. A trading journal does not need to keep track of specific things. Think of it as keeping a journal in general- you are writing about events that took place, what you were thinking, and what you were feeling.
Let’s apply this to trading.
In a trading journal, you are recording your day regarding the stock market. You can write about how you approached the market, what you were thinking as you approached the market, and how you felt as you approached the market. You can also record your trades. Write a step-by-step analysis of all trades you took. Make sure to write down every detail of the trade.
By keeping a journal, it forces you to reflect on yourself as a trader. It brings to mind how you behaved both physically and psychologically. Keeping a trading journal will let you see where you may have messed up with your emotions or a with a trade so you know what to avoid in the future. Review your trading journal often and look for signs of improvement. It’s a great way to keep track of your journey to mastering trading psychology.
13. Study Successful Traders
This tip works not only for mastering trading psychology, it works for just about everything. Study those who are successful at the things that you want to be successful with. Since you want to be a successful trader, find traders who are successful and study them.
Take note of everything. Learn what they do and how they do it. Then adapt it to fit your trading personality. What works for others will likely work for you. Successful traders do not have a secret formula that only they know. They know the things that you can easily find and teach yourself. The difference is that they know exactly how to apply that knowledge to trading.
Normally, I would only only recommend studying successful traders that appear to have a similar trading personality, but when it comes to trading psychology, that is less important. In this case, you are studying successful traders to understand how they have mastered trading psychology. You want to learn how they handle their thoughts and emotions while trading.
Remember, if they can do it, you can do it.
Summary Of The 13 Tips:
- Approach the stock market with the proper mindset
- Accept the uncertainty of the stock market
- Accept the risk
- Be positive
- Have a trading plan
- Be disciplined
- Always learn and increase your knowledge
- Learn different trading strategies
- Practice your favorite trading strategy
- Do your own research
- Keep track of your progress
- Keep a trading journal
- Study successful traders
Now that you know all 13 tips on how to master trading psychology, the only thing left for you to do is apply them. It is a lot to work on, but it is very easy to master your trading psychology once you have them figured out.
Do you have any tips based on how you have mastered your trading psychology? Have these tips worked for you yet? Do any of these tips work better for you than others? Make sure to let me know!