Trading psychology refers to the thinking process, mental conditions, and emotions that traders face during trading.
A trader must learn trading psychology to win consistently. Mastering trading psychology greatly enhances traders’ ability to make high-quality decisions.
1. Manage Your Emotions
The human being is an emotional living being. Emotion is involved in any activity and may destroy you if you stop managing.
Emotions like the price chart of a financial asset, move ups and downs. It has tops and bottoms, corrective periods, spikes, and falls. Emotion moves like a wave, as do other things in nature that move.
Emotion is created and accumulated like knowledge, wealth, corps, etc. Every moment, another feeling comes in and joins the rest. You have to manage your thoughts and feelings to accumulate positive emotions and trash out negative emotions. Negative emotions accumulate as you make bad decisions or face a bad situation, and so on.
Emotion spikes specifically when you need to react. While needing a reaction, you may think that you don’t have enough time for analysis which may result in bad decisions. In that situation, it is better to not make any decision if possible or delay the decision if possible to analyze the situation.
During days or even weeks, you may not be in good mental shape. You may feel unpleasant and hopeless, like a jerk, and invaluable. ALL OF THESE FEELINGS INHIBIT YOU FROM PROGRESS. Every human being is worthy, feels defeated, and faces terrible situations. All of them are temporary. That unpleasant time vanishes. Just control yourself.
Defeat your emotions!!
Understand that an unpleasant situation is temporary, and you are strong mentally.
You have proved your power in the past. Think. Find it. Review what made you succeed.
Defeat your negative feelings. The return is a massive reward.
The truth is you come back stronger. You come back stronger.
If a fight between your negative emotions and positive emotions. Help your positive emotion defeat your negative emotion.
I also recommend reading articles or watching some videos about emotion control.
Here is an example.
2. Learn from Your Mistakes
It is impossible to be mistakes-free in your life.
You and everyone make mistakes. But everyone should learn from his/her and others’ mistakes.
Big mistakes are made less frequently, and small mistakes more frequently.
You remember your and others’ big mistakes but not small mistakes because big mistakes shock your brain or your attitude.
Do you know Warren Buffet? He is one of the richest people in the world. Look at his mistake!
Warren Buttet is not alone.
Bill Ackman made $2.6 billion in early 2020. He is a smart guy.
But he also makes mistakes. Look at Bill’s mistake.
Every successful person has made mistakes. And continue to make mistakes.
You are not alone.
Understand that making mistakes is part of your life. And your job is to learn from your past mistakes.
As a trader, you make mistakes frequently. That is why you should take care of your mind and lower the number of your mistakes.
3. Write Down Your Rules and Strategies
Every successful person agrees that writing down your rules and timetable is one the most important tools for successful people.
Write down on a piece of paper, not on your mobile note app or computer.
Writing down your daily jobs helps you and pushes you to finish them on time.
Writing down your rules will force you to stick to your rules and strategies. Make sure what you write is available to you anytime. Look at your rules, and it will strengthen your will of commitment.
Never forget to write down your rules and strategies.
Try to remember your bad situations caused by not following your rules and strategies. It will strengthen your commitment to not breaking your rules.
4. Do Meditation
Meditation is clearing an unflavored mindset and focusing on your goals and awareness. It is a must to master trading psychology.
Frequent meditation makes you appreciate what you have. It will make you peaceful, focused, attentive to your goals, and so on.
If you don’t know how to meditate correctly, you must learn.
It is a great idea to take a meditation course because it not only helps you to succeed in trading but in any aspect of your life.
Here are things I do before, during, and after mediation that work well for me.
I prepare myself for meditation. I start with walking wherever I am. To make sure my muscles are relaxed, I do some pushups and stretch from head to foot.
B. During Meditation
I sit or lay down the way that I feel comfortable. I make sure that there is no pressure on any part of my body.
If you sit, try to sit straight and make sure your spine is vertical.
Then I take some deep breaths. While taking a deep breath, I inhale from my nose and exhale from my mouth.
I make sure that you breathe from your stomach. After some deep breaths, start breathing as I feel comfortable.
While breathing, I focus solely on my breaths and air through my nose and mouth.
I try to keep being focused on my inhale and exhale. And I come back if your mind wanders.
I continue for 10 minutes or more.
And come back as my mind starts wandering.
Exercise is a must for every person. It helps your immune system, stabilizes your mental health, and maintains your body fit.
It doesn’t matter the type of exercise you prefer. Just do what you like.
You may like going to a fitness gym, running or swimming. Just do it at least four times a week at least.
6. Take a Break
If your losses continue, it is probably the best idea to take a break.
The length of your break depends on your mood and how long you have been losing trades. It does not matter if you are a Forex trader or a stock trader.
If you are feeling depressed, going on vacation is recommended. Go somewhere to enjoy your time.
It is vital to avoid further losses after two or more consecutive losses. Just stop trading after two back-to-back losses and go out. Visit your friends if available. If your friends are not free, go out for a walk.
7. Stop Trading While You Are Angry
Don’t place a trade when you are angry. Anger will double or triple the chance of losses as you make your decisions emotionally. You will regret it in the future. Try to remember the last trade that resulted in a loss due to anger.
Trading while you are angry will result in loss, and losses will convince you that you are useless. You will feel jerked.
Don’t let anger lead you to unconscious trades that lead to regrets.
Walking is one of the best ways to diminish stress.
Walking burns stress.
Don’t forget to go walking to continue losing.
Walking also refreshes your mind.
As you have defeated your negative emotions, you need to nourish your positive emotions and maintain them all the time.
Repeat any action that nurtures your positive emotions to strengthen your positive emotions.
You have to continue reading your rules frequently, meditate every day at least once, exercise three to four times weekly, and stop trading any time when making losses two times consecutively.
8. Apply Risk Management Techniques
Trading psychology requires risk management.
You must understand how much you can lose and what the associated risks are.
The number of risks can be countless. Every asset has its own list of risks. As a good trader, you must try to identify associated risks as much as possible.
One of the most common ways to manage your risk is to put a stop-loss. It cuts your loss when you are wrong.
Or, you can hedge and diversify your portfolio in case you are not very sure what is going on in the market.
Also read: 9 Reasons Why Most Forex Traders Lose Money