by Today I am going to explain Trading Psychology Strategy – 7 Tips to Master Your Mind a slightly different type of Article what I feel it’s a better way to share the most important trading psychology tips that can improve your mental approach to trading.
let’s start with one of the most important trading psychology tips learning to manage risk now risk and reward are what it’s all about and to be honest, most traders do mishandle this part instead of preparing in advance and learning how trading works many just go all in before they understand. For example, how the markets work or they end up risk losing money they can barely afford to lose in the first place.
Trading Psychology Strategy – 7 Tips to Master Your Mind
1. Risk Management
- Risk management is to always trade with money that you can afford to lose how much money you have to start off with doesn’t matter.
- This part of risk management is involved no matter what your income is whether it’s high or low your trading account should never have money in it. that if lost means you are going to be severely financially damaged it doesn’t matter how good an opportunity you think has appeared before you.
- I’m sure we do all feel that way but you should always consider well what happens if you end up being wrong how much could you actually end up losing. if you do this even in the worst-case scenario where that does happen you should be in a position where it won’t affect your lifestyle or the opportunity to invest and trade again that’s very good.
- I have already posted an article on risk management where you can read in detail. other related topics like the risk-reward ratio the percentage you should risk on every trade and how to adapt to losing as well as winning trades.
2. Discipline
- The next psychology tip is another important one and it will help with your discipline before during and after trading to help with your focus. When it comes to trading you need to have a trading plan outlined and preferably this is written down it should detail, what instrument you’re trading the conditions and levels at which you’re prepared to open new trade and when you’re in that new trade when you adjust the position.
- If necessary or finally close the trade out having a take profit and stop loss level are also important parts of this plan sticking to the plan will help keep your mind from wandering and overthinking and agonizing about each step overthinking during a heightened period of stress usually leads to mistakes.
- As the emotional and more primal parts of our brain take over from the reason and logically focused are and let’s not forget risking money is definitely a stressful activity as I’m sure most of us already know keeping yourself grounded and coming up with a sort of a playbook for different situations in the markets can help prevent mistakes and limit the damage these mistakes can end up doing our third tip is to try and overcome your inner greed.
3. Overcome Greed
- You don’t need to be a greedy person to experience some levels of that emotion while trading when it comes to financial markets it’s more or less a natural occurrence but it’s something that should be kept in check for as much as we possibly can you might have come into trading looking to get rich quickly or you may have just had a winning streak in the markets when it comes to your trade and thinks that finally, you’ve got the secret of the markets figured out.
- In trading everything can change really quickly a trend that had been going for some time can switch direction a company that has been doing well can have a bad quarter and of course we can see a currency that can get devalued overnight.
- So having a plan prepares you mentally for almost every scenario and in turn, keeps those stress levels low the less stress you experience the better your decision making
4. Revenge Trading
- One should be something very specific something that some traders are prone to do after losing the so-called revenge trade.
- This happens when you have a losing trade then you fill up with negative emotions and possibly even anger.
- So you quickly decide to get your money back regardless of what the market’s doing or your own mental state quite often.
- Revenge trade happens with the same asset you lost money on you feel it owes you some money.
- So just like other mental states it can occur naturally no one likes to experience defeat and we want to get back at whatever beat us but in this case the thing that beat us the market it’s a neutral juggernaut influenced by hundreds of thousands of variables and market doesn’t really care that you lost money.
- The market is not an enemy and it’s wrong to treat it as one we shouldn’t look at it that way to avoid revenge trading it’s always wise that we check ourselves after closing a trade that ended up losing money.
- It will be unpleasant it might even be painful for some but you should let the negative emotions run their course.
- let them sink in and dissipate and not affect your trading attitude instead of quickly trying to erase these negative emotions you should stop trading, take a break, get away from the screen, and when you get back to the charts.
- Just try to analyze what went wrong if anything, not every trade can be a winner but learn from the loss take some value from it instead of repeating it and possibly making the same mistake again the so-called fear of missing out more commonly referred to as FOMO.
5. FOMO (Fear of Missing Out)
- This is the next thing you should take a hard look at when thinking about trading psychology.
- Fomo can be one of the main causes of losses because it makes many traders open trades in volatile assets.
- Probably aren’t suitable for smaller and medium-sized accounts usually the move up or down has already run its course.
- They’re sucked in by that and the majority end up joining, after the party is over. so how can we deal with this, well first of all it’s advisable not to rush in without examining in great detail.
- The reasons an asset is moving are its fundamentals that good but in your opinion you think it will continue growing is it speculation and the crowd pouring into it and deriving prices up you can still trade it but just try and understand why this market is moving.
- Other more specific points that we can think about twhen having the urge to join the crowd on a fomo trade.
- Take a look at the market very very carefully with volatility are we seeing moves in both directions could we have a better entry point is the momentum increasing?
- Is the crowd psychology still driving the market in the same direction or actually is it weakening should you open a smaller than usual trade but with a wider stoploss level to take.
6. Self Reflection
- Regularly review your own performance so that you can see the full picture this has two components an external component and an internal component.
- The first part is easy just keep track of the trades you make the circumstances and conditions in which they were opened and then closed and just like we mentioned before if you made a mistake you can learn from them.
- The second one is a little bit harder, it requires dedicating some time and space to reflect on your emotions your decision making.
- That could be impacting your trading different approaches work for different people but in my experience finding some time to think and review after trading is done,
- You’re away from the screens allows you to process the the ups and downs of what’s been going on in the markets.
7. Break Trading
- Final trading psychology tip is to take breaks, trading can be mentally exhausting as it eats up your time eats up your attention and often your mental capacity.
- It is achallenging activity that requires people to have a solid level of mental fitness and alertness.
- Traders are not going to succeed, if they day trade in particular in and out of the market several times during the day.
- Trading doesn’t means you need to fight with the market or taking revenge from the market.
- One should follow their own trading routine, if you trade a bit less frequently you can occasionally sit out different situations and just observe how they unfold without risking anything on their outcome.
- This will allow you to recharge and improve your chances to make the right decision when the next opportunity comes along.
Trading Psychology – 7 Tips to Master Your Mind for day trading is usually the best trading strategy to take the trade. This setup is very easy and simple to use just you need to keep patience and let your setup form and then you can enter your positions. One should follow the Risk Management, Money Management, and Fear and Greed concept of the market to avoid big losses.
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