Trading Psychology – Our Guides So Far
If you have been following our blog, you would know that we started off by touching subjects that explain the psychology of trading; the thinking and mind-set required to become a successful trader. In the forthcoming posts we will be discussing actual day trading tips, ideas and strategies alongside our regular posts on the psychology of trading. This short post however will be handy for those who would like to see what has been discussed so far about trading psychology. We intend to progress slowly thorough the stages of learning and covering the subjects that relate to day trading, therefore we have initially kept out focus on the thinking and psychology of trading which will soon shift as we progress through the different stages planned out for this blog.
Here’s a great quote that sums up why it’s important to learn the psychology of trading:
“All through time, people have basically acted and reacted the same way in the market as a result of greed, fear, ignorance, and hope. That is why the numerical formations and patterns
recur on a constant basis. Over and over, with slight variations. Because markets are driven by humans and human nature never changes.”
― Jesse Lauriston Livermore
I have another way of looking at it when I see people jumping straight in to learning trade setups and strategies. Imagine beginners as foot soldiers on a battle field who do not know or see the full picture of an ongoing warfare. Now worst yet, imagine a soldier who is made to stand in the line of fire without ample training and understanding of the warfare. What do you think would be the chances of success in the given scenario? That’s how lost and confused beginners are, when they are miss-sold the dream of riches, and made to trade within a few days, even the very first day and minutes after joining a trading programme.
Trading is no different. If you become slave to a setup or a trading system without knowing the fundamentals, then you are likely to succeed in situations you have been trained to handle, and you’re bound to fail when the situation changes or when variations come in to play.
You can make money without knowing what is going to happen next.
― Mark Douglas
By no means I am discounting the fact that trade setups and systems don’t work. However, having a deeper understanding of ourselves (trading psychology) and the right mindset can give you a better chance of survival or even thrive with your trading abilities.
Here’s a quick overview of what has been discussed so far covering the psychology of trading:
1. The Real Need For Trading: We started off with the basic reasoning behind the need for trading, and discussed how money works, and why profit seeking is the ultimate form of expression in day trading. We discussed, how we (as humans) are expressing our needs by performing actions, and how our environment influences our actions.
2. Keeping An Open Mind For Trading: We discussed the importance of having an open mind at all times, and not letting our biases take over and influence our decision making.
3. Learning To Think Like A Trader: In this post we discussed the main aspects and psychology of trading that play the most important part in trading. We explained how the approach changes our psychology and separates a successful trader from the rest.
4. Your Concept Of Money Changes Your Psychology: We explained how the majority of professions work, and why the conventional approach to money works fine for all professions apart from trading. We discussed how the psychology of working 9-5 has a negative impact on a trader’s ability to make profits.
5. Psychological Factors That Drive Trading: We discussed in detail the most powerful human emotions ‘fear and greed’ and how they drive trading activities. We also looked at the processes and reactions that take place in our subliminal minds and trigger impulse actions. We also looked at the negative psychological impacts when in a losing trade, and ways we can avoid and prevent revenge trading.
6. The Nature Of The Trading Game And Psychological Implications: We discussed how trading is being sold or miss-sold these days, leading people in the wrong direction and giving them the wrong mind-set right from the start. We also discussed the common misconceptions about day trading and the psychological implication of having emotional biases.
7. Why Do We Need Predator Mentality To Succeed?: We discussed how the different approaches to trading may or may not work. Often beginners struggle to understand the nature of the trading environment and lose money. We also discussed the psychology of most successful traders and what makes them more profitable than others.
In the forthcoming posts, we will be discussing day trading strategies and action plans in detail. However, at this stage, I felt we have covered a lot of ground on the psychology of trading and making a post that gives all the links to the topics covered so far.
Thanks for reading…