Where to Start with Trading Psychology
You’ve got into trading, you’ve got to grips with the ins and outs of placing a trade, you’ve got a handle on risk management, and you’ve made a trading plan that ticks all the boxes.
You’ve read that trading psychology may be more important than all those things when it comes to making a success out of trading, but where to start?
What is trading psychology?
Trading psychology is essentially the idea that you are the most important piece of the successful trading puzzle. You can have all the other factors sorted, but if you are not looking after what is going on inside your head, then you are not going to make money trading.
Your success will be sabotaged by lack of confidence, revenge trading, lack of patience, frustration and lack of control.
Trading psychology ideas
It’s a good idea to work on your trading psychology from the very beginning of your trading journey, and here are some ideas to get you started.
#1: Know yourself well enough to choose a strategy that fits your personality.
What timeframe suits you? Do you like making quick decisions or do you prefer a calmer approach? Would you be better suited to scalping, or would swing trading be a better match for you?
The only way to know this is to try different styles and see which one feels right for you. Don’t blindly follow someone else, their style might be a great fit for them, but not for you. There are so many ways to trade, there are trading styles that will suit you better than others, and those are the ones you want to focus on.
#2: Take it easy, there is time.
The best traders have built up years of experience, and know themselves inside out when it comes to their behaviour when interacting with the market.
It can be tempting to throw yourself into trading every instrument out there, reading every news release, applying every technical indicator to your charts, and trading every available minute of the day, but it’s better to pace yourself. Otherwise you risk burning out and becoming exhausted. Start small, start slowly and add more (or not, sometimes less is more) as you learn and gain experience.
#3: Look after yourself.
Look at your lifestyle. Are you planning to trade part-time? How many hours are you realistically able to commit to trading, while still having time for leisure, to eat and exercise properly?
Take the pressure off by making sure you have enough funds outside of trading, either through other paid work or savings. Trading is infinitely harder when you need to make money, especially when you are starting out.
#4: Find a way of dealing with your emotions.
There are lots of ways to do this, and the answer is not necessarily to push them away. We are all different, some traders use a super-logical objective mindset to keep their cool, while others prefer to keep in touch with their emotions to know if they are trading from a place of fear or calm.
Find whatever works for you, so that you can minimise the times you make poor trading decisions due to fear, greed, boredom or frustration.
#5: Stay discipled and focus on the long-term picture.
No matter how great a trader is, their equity curve will never be straight. Whatever the market, there will always be drawdowns and bumps in the road. It’s at times like these that confidence gets knocked and discipline starts wavering. Sticking to your risk management rules and trading strategy is hard but essential to make it through the drawdowns, and keeping a focus on the longer term can help with this.
#6: Keep a trading journal.
This is a great habit to get into right at the start of your trading journey. A journal allows you to keep a record of not only your profit and loss, but also of your decisions behind every trade. When did you take them? How did you feel when you took them? What influenced your trading decisions?
Looking back at the entries in your trading journal can really help to see patterns in your trading psychology, so that you can identify any strengths and weaknesses, enabling you to minimise your poor trading decisions and build on your good trading habits.
Over time, focussing on these trading psychology ideas will built your resilience in the markets and help to improve that essential piece of the successful trading puzzle.
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