Trading Psychology 101

Now that you’ve studied the basics of technical and fundamental analysis, as well as the importance of proper risk management techniques, it’s about time to take a look at another crucial component of trading success: trading psychology.

While the basic trading  concepts allow you to spot profitable trade setups and risk management enables you to limit your exposure or maximize your gains, trading psychology ensures that you maintain the right mindset during a trade and throughout your trading career.

Trading psychology allows you to stay focused even in the middle of a long losing streak and gives you confidence to bounce back from a large drawdown. It enables you to keep a clear head and manage your expectations when you’re having a good run. This is what separates seasoned trading pros from beginners, as proper trading psychology makes you focus on the process and not the profits.

As with professional athletes that also have a sports psychology mentor that helps them keep their head in the game, traders also need guidance when it comes to having the right frame of mind, especially during ever-changing market situations. In a fast-paced trading environment, one can easily get distracted or stressed in trying to make money, but trading psychology ensures that one is focused on staying disciplined or keeping a level head.

With the right trading psychology, one can be able to step back and take a look at the bigger picture of one’s trading endeavor instead of zooming in to winners or losers. Too often, a losing trade can dampen one’s confidence and destroy one’s focus for the next trade setups. Similarly, a winning streak can lead to overconfidence and also ruin one’s focus moving forward.

What’s interesting about trading psychology is that it is a constant learning experience. While mastery of basic forex techniques such as market analysis or building on winning positions is possible, trading psychology takes a long time to master and even the best traders out there do need a little guidance every now and then.

It doesn’t matter at what stage you are in your trading career. Even if you’re a beginner just learning the ropes or an expert trader managing multiple trade positions, one’s trading performance and overall well-being could benefit from trading psychology tips.

Group Think Vs Trading Plan

The following article is written by Matrixcool :

Group Think Vs Trading Plan 

I always want to write this article to tell my readers about the important of a Trading Plan and finally I got my son to help me to put it down on words. 

This happens a lot in social circles and discussion boards. It comes from insecurity. You've seen it many times, someone comes into a conversation and they say things like, "I think this counter xyz going to move in a big way tomorrow, I heard it from Mr. ABC. You guys think it's a great opportunity right?". What seems to be an innocent and harmless "hearsay" stock tip is actually an individual seeking confirmation from his or her peers. That means that person, on a deep subconscious level, is actually not sure whether or not this is a good idea to trade in Counter XYZ. That person has no confidence in their own system or trading plan, or even worse - they have absolutely no plan to begin with. They want to hear people say to them, "Yeah! sure make money bro!", so that they can feel secure. Do not be like that person, as you have no reason to be. 

You are armed with technical knowledge, and you have many opportunities to research a counter before going into a trade. Not even that is fool-proof, but a trader with a plan is bound to succeed more than an insecure group-thinking person. Why? 

Simply because doing the hard work and analysis gives you a structure on how you will do your trading. After that you set your own trading plan, know your Entry Price ,Potential Rewards and Stop Loss level. You already have the three most important parts of information for when things go right, or when things go wrong. Meaning to say, you don't need to ask ANYBODY for confirmation on whether or not the trade is going to be a smart trade. This is because you know exactly when you want to go in, or when to pull out. If you stick with your trading strategy and plan, you need not worry about someone else's insecure statements like, "Aiyoo I think this counter going to go down further lah!". 

I've seen big groups of people being dragged down by one outspoken, insecure trader - because they were not strong-willed or disciplined traders themselves. With that in mind, always remember to separate your emotions from your technical analysis. It's impossible not to feel any emotion, but try to be as objective as possible. Stay away from insecure people trying to take other people into their black hole of insecurity. Avoid group think, and contribute / help other traders on a basis of confidence and discipline.