What Is The Proper Trading Psychology Of The New Trader
What every trader in order to be successful needs to master is the key fundamentals of trading, these include the proper psychology mindset, a sound trading system, and a disciplined money management program. These elements are extremely important, so much so that if one component is removed, the entire arrangement would crumble.
What’s critical is that the trader must have a firm defined set of trading rules which they cannot stray away from. Before pulling the trigger on the trade, what needs to be made sure is that you completely analyze yourself. Make sure that you’re trading decision is logical with your mindset and not your emotions. Also develop and adhere to a strict money management system so that any potential loses will not destroy your trading account.
Relatively new traders are usually divided into two distinct groups when it comes to trading: technically trained traders who will stop whenever they need to, and the emotional trader who trades to fulfill an unconscious need, and thus cannot stop.
These neurotic traders will suddenly feel extremely lucky that particular day or are wanting to “experiment” with their luck and not use logic. They feel extremely powerful when they are right. The problem with this is that these types of traders will eventually lose their capital as they will continuously attempt to re-create that “lucky feeling,” much like they’re throwing a dice. They will do so instead of developing short and long term trading goals.
These are the traders who will usually feel extremely happy when a trade happens to go their way and will get visibly upset if it doesn’t. The difference between this trader and a professional trader is that the professional trader will not get excited or upset during the trading process.
The key sign of a “neurotic” trader is their inability to stop themselves from chronically clicking that trade button. So if you begin to find yourself in a series of losses with bad results, it’s recommended that you step away and stop trading for a while. During that time, make sure that you re-evaluate your self and your trading rules.
Childhood Discipline May Be The Key
Most of the failures when it comes to trading is because of the trader themselves and not the market. They fail not because they’re not smart, but more because they lack the proper skills to re-evaluate or control themselves.
When traders begin to get in trouble, they will either begin blaming others, such as the poor advice from the professional advisers, or just blame bad luck. Then these traders will just continuously stick to the same defeating patterns rather than trying to change or improve.
Always keep in mind that any failure is fixable. In order for you to become a better trader, you need to know your weakness. Very often, thinking back to the memories of your childhood can usually prevent you from becoming a successful trader. So you need to find that blockage when you were younger, relieve it and then continue.
An excellent method is to track yourself by keeping a note of every trade that you make. Write them down, as well as listing the reasons why you entered that trade and why you exited it. This will help you to re-evaluate your trading plans and tactics.
No Trading Warning Signals
Perhaps one of the worst elements of trading is that there is no support or human indicators to warn you when you begin to behave badly. Almost every profession usually provides some type of support service for its members.
Bosses as well as clients will usually warn you as well as others if they suspect that you’re on the verge of imminent failure, or if they or you are stepping towards that area.
The problem with the financial markets is that it provides significant opportunities and thus more advantageous for the trader to “fail,” that’s why there’s no warning or support. The majority of the citizens in our society will usually make a moral judgement and will protect each other from the potential consequences of making mistakes or being in danger. This does not apply to trading.
When your driving your car, you attempt to avoid hitting other cars and they avoid hitting you as well. You will usually swerve in the opposite direction when another vehicle comes out of nowhere. If someone decides to curse you on the road, you’ll most likely curse back, but either of you will slow down or speed up.
One of the biggest problems with the market is that it operates without any concerns for human awareness, and this is why it’s extremely dangerous for new traders as there are no safety nets. It’s strictly the new traders responsibility to know and take all the precautions before they trade, and then evaluate their actions themselves because no one else will do it for them.
For example, a trader entering the market at the highest “price” peak of the day on a financial instrument is similar to getting into a car crash. When your buy eventually reaches the trading floor, there are others who are frantically racing to get rid of their trades. These other traders are never looking out for you because they want you to fail, so that they can get your money. This is one of the downfalls of the minus or zero sum aspects of trading.