Psychology in trading – An introduction

Psychology in trading – An introduction

In this article we will explain the basics about the role of psychology in trading. Psychology will have a big influence on your trading and your trading decisions. When it comes to money and emotions your decision making can become clouded and biased quickly. We will now teach you how to deal with this in the correct way so you can minimize the negative effects involved.

Only trade forex or CFDs when you are in the right frame of mind for it both mentally and physically. Feelings and emotions will impact your trading more than you would think.

Do not doubt yourself or your positions. Markets are always moving and it will happen that sometimes a trade will move in the wrong direction before, if everything goes well, it moves in the anticipated direction. Ask yourself if you have followed all the rules for placing a trade correctly and make sure you are confident with the outcome of the trade. This will keep you from acting emotionally because of fear of loss.

Here are 3 emotions that can make you act when you probably should not:

Impatience

Impatience is a common cause for losses among beginning traders. Of course we want to enter the market rather sooner than later and in fact that is only human. Before placing any trade you have to make sure that you are comfortable with the platform that you are using. If not keep on practicing a bit longer or use a demo account for a while. Did you set up a trade according to your trading plan?

Checklist for entering a trade. Make every trade a perfect trade!

  • Did you get a signal?
  • Did you enter on confirmation?
  • Was your position size correct?
  • Was a stop loss set before entry?
  • Was the trade monitored correctly?
  • Did you adjust stop loss correctly?
  • Did you exit as per system?
  • Constantly monitor open positions

Greed

Don’t get greedy. Greed will make you lose sight of the rules and your trading plan. When the perfect opportunity arrives you might be tempted to place bigger trades than you should. If your trade has reached the profit you anticipated do close the position. Hoping for even bigger wins might end up in a disappointment.

Overconfidence

Don’t get overconfident. Winning trades are good of course and will make you feel good and confident about your trading. It is important however not to start taking higher risks because of it. Always stick to the rules and your trading plan as discussed before. Most of all try to stay cool.

In trading forex and CFDs you will be confronted with profits as well as losses. This is just the reality of trading and something to consider. Avoiding emotional trading is a part of risk management in trading. Click here to read our article about risk management in trading.

Another way to remove emotions from trading is to use an automatic trading system. Major Markets Trading offers two automated trading systems. The trading systems are suitable for traders who have little time to trade, do not have programming skills and want to remove emotions from trading. Both trading algorithms have been profitable since 2017 and have a full track record. Click here for more information.

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