In 2021, conversations about mental health are more and more common and taking care of your mental state is becoming just as important as caring for your physical well-being. It is hard to argue that an attentive approach to mental health is extremely beneficial, and not just for the individual, but the whole society. Is it the same in trading? Why does it matter to improve your trading psychology?
Advancing your trading psychology is one of the key tasks when it comes to dealing in trading markets. Working on one’s trading psychology includes managing emotions, improving attentiveness and focusing on market analysis.
Recognize emotional trading
A stark example of emotions affecting one’s trading is when traders switch from the practice account to their real balance. It often happens that after switching traders find that their strategy all of a sudden becomes useless: it simply doesn’t work anymore, no matter how much they try. The two balances are identical and work the same way, so what is the reason for such a sudden change? The answer is simple: unstable trading psychology and susceptibility to emotions.
When traders use their own hard-earned money, all the feelings are amplified. This makes it much harder to make balanced decisions, like traders do on the practice account. Good results bring positive feelings, a sense of content and drive. At the same time, negative outcomes often result in feelings of despair, frustration and the desire to take revenge. Strong emotions like this act as a catalyst, they cause an adrenaline rush which often leads to careless trading — larger investments, lack of trading limits, neglect of the risk management principles.
This is why many experienced traders prefer taking a break between their deals. Overtrading is never a good idea, since it wears you out and causes emotional rather than rational responses. Improving your trading psychology means being resilient to emotional responses.
Focus your attention
To improve one’s trading psychology, it is necessary to work on the attention to details. Missing an important part of your trading plan may mean losing extra funds because of an unfortunate mistake. To boost your attention, dedicate specific time to trading and stick to the routine. Write down the important specifications and double check your trading journal before executing a deal.
Attention also means reflection — reflect on your results, regardless of what they are. Think about why the result was like that and what you could change to enhance it. Learning from your own mistakes and successes is beneficial, since it helps you understand yourself better.
Prioritize market analysis
Good trading decisions cannot be based on intuition, they have to be based on good assessment of the economic conditions. While some famous investors believe that personal preferences in trading assets are acceptable if a trader has specific knowledge of the industry, any choice of an asset has to be confirmed with technical and fundamental analysis.
A well-balanced trading approach is one that considers analysis indications and includes different types of chart assessment before making an investment decision. Improving your trading psychology means being ready to spend time on analysis and implement your findings in practice.
Working on your trading psychology is crucial if you are aiming to become a better trader and upgrade your results. Just like the physical aspect of trading — executing the deals, the psychological aspect of it is just as important, if not more.
