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The Pyschology of Trading

By Edited Dec 2, 2015 0 0

Developing a Traders Mindset

Trading Psychology has become an important field in trading over the past 20 years or so. Mainly because trading requires a huge amount of composure in an environment that has very little certainty. Take for instance engineering, psychology is not part of any engineering syllabus that I have seen and engineers do very important work in most cases. This clearly highlights the psychological strain that traders experience on a daily basis compared to other professions.

Fear, Greed and our belief system

Both Fear and Greed can cause us to lose control over our minds especially when there is money involved. Trading psychology also involves looking at our beliefs such as

Is trading Ethical or simply gambling? Or my favourite, Is making money by simply buying and selling something invisible adding value to mother nature ....

.....Who really cares? Life is not fair in general.

Are taxes fair? , you pay tax on your salary , then tax on any items you buy with the remainder of that salary then tax on any income you generate using your already taxed salary. How is that fair?

Our world is out of balance take footballers that earn massive salaries or even your doctor that charges you anything he feels. How is that ethical?

So if you feel bad about trading and continually feel you need to defend what you do as a career, just J and ignore the haters.

A trader simply cannot live with fear, greed or an inferiority complex.  It will put you under a psychological strain whether you aware of it or not.

How to deal with Fear

  • Accept risk as being part of your job
  • Take responsibility and don’t blame anyone or anything for your trading outcomes
  • Accept that trading is a numbers game and that no one knows where the market will go
  • Realise that the market is not out to get you

How to deal with Greed

  • Have a plan and stick to it. Do not let a winning trade become a loser because you wanted to squeeze out more profit.
  • Be content. This holds true for life in general and it will keep the feeling of ‘not enough’ away from your trading.

How to deal with Wrong Beliefs

  • Stop trying to get validation from the world. The world simply doesn’t care about your best interests.
  • Do not blindly accept any belief, test and decide for yourself 

It’s simple, don’t give fear, greed or wrong beliefs the power to dominate your mind. You need a calm and rational mind that can make decisions based on reason. Check up on yourself and offer encouragement, this may seem unnatural but it is so simple to ignore your state of mind while trading. 

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