The psychological factor is a very important reason for the success or failure of a trader.
With a clear trading strategy and the ability to correctly analyze the market, most traders lose money due to the inability to manage emotions.
- What is the motivation for trading?
- How do our emotions influence the decision-making process?
- How to avoid failure and become a successful trader?
Have you ever asked yourself these questions?
There are a few basic rules, the adoption, and observance of which will help you prioritize correctly and succeed in trading.
Rule 1: Be objective – it’s impossible to win a million in a minute.
In exchange trading, such well-known sensations as fear, greed, hope, etc., sometimes have a decisive influence on the behavior of a trader.
Weak and self-confident, greedy and slow – all these people are doomed to become victims of the market.
Knowing your abilities, strengths, and weaknesses will help a trader avoid ruin.
If we add to this the ability to adequately assess the psychological state and the corresponding behavior of the market crowd, then success will be guaranteed.
Rule 2: Don’t be overly greedy.
One of the driving forces that encourages you to participate in trading in speculative financial markets is the opportunity to earn “easy money” or, to put it bluntly, greed.
The result of greed is the motivation to open trading positions.
There are two types of motivation:
- Rational motivation is expressed in cold prudence when making decisions on concluding transactions;
- Irrational motivation is expressed in the player’s excitement and is present in almost every trader.
However, some control their excitement, while others are slaves of emotions and are practically doomed to lose.
If a trader does not have a work plan drawn up before making deals, all this suggests that this person is most likely working under the influence of greed and not reason.
If a trader does not have a work plan drawn up before making deals, all this suggests that this person is most likely working under the influence of greed and not reason.
Rule 3: Don’t overestimate your abilities – stick to your calculations.
The next factor that encourages a trader to enter into transactions is the hope of making a profit.
When hope prevails over calculation, the trader risks overestimating his capabilities when analyzing the situation.
Hope must be subordinate to both calculation and greed. It is a huge hope that leads novice traders to ruin.
A trader who lives in hope is doomed to failure.
The hope pushes traders to commit one of the grossest and biggest mistakes – shifting the stop order level.
Rule 4: Accept the loss.
You cannot become a successful trader until you are prepared to win and lose. Both are integral and important parts of the trading process.
There are often obstacles on the way to mastering the art of trading. When a trader focuses on problems (which can be anything, such as a lack of funds, resources, and knowledge), he experiences anger, guilt, frustration, and dissatisfaction.
But such an emotional state will not allow him to move forward.
If the loss is unacceptable for the trader, he will not be able to close the unprofitable position in time.
When traders are not ready for losses, they usually get even bigger.
Trading Philosophy
Don’t confuse confidence with overconfidence.
In trading, there is a tiny minority of winners and an overwhelming majority of losers, with the latter wanting to know the secrets of the former’s success.
Is there really any difference between them?
Yes, there is the one who makes money week after week, month after month, and year after year, trades, observing self-discipline.
When asked about the secrets of his stable market triumph, such a winner does not hesitate to answer that he could reach such heights only when he learned to control himself and his feelings and change his mind to match the market.
Overconfidence can easily become dangerous, as people who are overconfident in their beliefs will overlook information valuable to their trading decisions.
Self-confidence and negative emotions are directly related to each other in strength.
In general, self-confidence and fear are similar: one with a plus sign and the other with a minus sign.
If a person feels more and more self-confident, then there is less and less room for confusion, anxiety, and fear.
How does confidence develop?
Naturally, as one learns to rely on oneself in everything that needs to be done, and without the slightest hesitation.
With such self-confidence, a trader no longer needs to fear the market with its seemingly unpredictable and chaotic behavior.
The point here is not in him: after all, it was not the market that changed, but the trader, his inner world, and his psychological warehouse.
The market remained the same, as did the trader’s technical tools.
How to become a successful trader?
There are two important components on the way to effective trading:
- Establish for yourself the principle of trading solely based on self-discipline.
- Learn to remove negative emotional energy which remained in the memory from the past trading experience.
Thanks to the principle of self-discipline, the self-confidence necessary for successful market actions follows.
In most cases, a trader starts his journey at the initial stage without understanding the psychology of trading and the principle of self-discipline.
And most likely, he receives psychological trauma (a psychological state that can cause a person to feel fear) of one degree or another.
You have to learn to let go of your worries. Then there will be fewer fears, and as a result, you will gain new knowledge about the nature of the market.
Bottom line
To be successful in trading, you must take full responsibility for your decisions and actions.