Trading Psychology Guide

You have to
be in a right emotional state when trading, don’t trade if you’re tired, upset
or bored, because your decisions and analysis won’t be as good as when you’re
in an optimal state. Ideally you should be in a neutral alike state, without
other emotions impacting on your performance.

Mark Douglas
in his famous book “Trading in the Zone” highlighted these pillars and fears
that you should be aware of:

1. Your edge
is strong, and you have an unshakable belief in an outcome with an edge in your
favour.

2. You truly
and deeply accept loss.

3. You know
that once you are in a trade anything can happen, and anything is possible, so
you remain neutral and flexible.

4. You
expect positive results for your efforts with an acceptance that whatever
results you are getting are a perfect reflection of your level of development
and what you need to learn.

Now let’s
see the main fears:

1. Fear of
being wrong.

2. Fear of
losing money.

3. Fear of
missing out (also called FOMO).

4. Fear of
leaving money on the table.

Let’s break
down these fears so you have a clear understanding of them and see some tips on
how to overcome them.

Fear of
being wrong: you have to accept the unpredictability of trading. No
one can predict with certainty the future, what you should do is stack all the
probabilities in your favour by doing your analysis and trade accordingly. If a
trade is not working out as you expected, then cut it, take the loss and move
on. Always look at the bigger picture and not the short term setbacks.

Fear of
losing money: you have to accept that losses are part of trading,
everyone loses, even the most successful traders in the world, so you should
focus on trading well rather than the gains or losses. If you do that, you will
do great in the long run.

Fear of
missing out: you have to realise that no matter how good you are, you
will always miss opportunities, it’s part of the game and you shouldn’t chase
the opportunity if it’s not there anymore forcing unplanned trades. Remember
that you do not need to get on every opportunity to make money.

Fear of
leaving money on the table: It will happen that you exit a trade and will
see it go even further in your direction or worse cutting a losing trade and
then watching it go in your favour massively. This is absolutely normal and
ties perfectly with the unpredictability of the markets. You can’t consistently
call perfect tops and bottoms or exit just before a big drop or rally against
your positions. Take what you got and just reassess for the next opportunity,
because just as it’s hard to make money it’s equally hard not to give them back
to the markets.

When you
notice that you’re performing badly and your emotional state worsens day by day
just shut everything off, do something else, do some sport, read a book, if you
have a hobby even better, you have to get away from that bad psychological
state before returning back to trading.

This article
was written by Giuseppe Dellamotta.