5 Tips To Improve On Trading Psychology
Trading is more about psychology than it is about strategy. Yes, a strategy with an edge is important but the trading psychology of the trader is more important than the strategy. This is because a strategy can only be well executed by a sound trading mind. Therefore the strategy depends on the psychology of the trader who is executing it.
The Bigger Picture
It is key for a trader to focus on the bigger picture rather than just focusing on a few trades. A trader is not supposed to dwell way too much on one trade. Be it a winner or a loser. Because if he lets the trade get to his head it may result in a mindset that works against the trader. A loser given too much time in one’s head ends up resulting in fearful execution which is not good for a trader. A winner that is dwelt on way too much may put the trader in a mindset where they are arrogant and cocky which may lead to him/her executing trades with way more risk and less analysis which will ultimately result in blowing accounts more often than not. Therefore every trade should be treated as just part of the bigger be it a winner or a loser.
Treating Trading Like A Business
This mindset might as well be the breakthrough for many traders if they are willing to work. Treating the craft as a business in the work input as well as the execution is key to success for any trader. Just as anyone in any other business does not expose themselves to too much risk so should any trader. Defending one’s capital at all costs and aiming for reasonable profits that compound week in week out is instrumental for the growth of any trader.
Not Taking Losses Personally
Traders have the notion that markets are somehow always hunting their stop losses. Always going against their trades. The forex markets are too big to be going after your 0.01 lot size trade you open on your 1 minute time frame and target 30 pips. No offense intended. If your trades are always failing it’s not about the market being rigged to make you fail. Rather it’s just a sign that you should improve on your trading skill.
Work Percentage Wise
Working in terms of percentages rather than dollars. This mindset is good because it actually tells the truth about your progress rather than the dollar terms. I hear some novice traders disappointed that they only made $100 from a $10 account in 3 months. THAT IS 1000%!!!! They should be proud. Hedge funds would pay you to trade millions for them if you can pull off these percentages consistently. Don’t look at the money you make. Rather look at the percentage growth of your account.
Spend Time on Charts
This cannot be overstressed. There is no such thing as enough time on charts. Just like learning football requires one to kick a ball many times, math requires a lot of practice on math questions, and business is learnt through actually starting a business, so is trading through interacting with charts. You have to create “muscle memory” by continuously being in front of the charts. This makes you more confident when taking your trades as the patterns become second nature to you.