Google+ Consumer Psyche: Psyche in trading

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Monday, July 27, 2009

Psyche in trading

I found Pooja from 3paisa.com has a piece of advice which is relevant...

One of the most important skills for a successful trader is separating emotions from trading. In order to succeed, a trader must be abstract in their trading. For example, if you are trading your Profit and Loss balance instead of your chart, you will panic during typical price fluctuations, causing you to exit your trades early -- only to watch as the market then resumes its original path. Why? Because you are emotionally vested with your money. You are watching your Profit ticks up and then you are watching as your profit ticks down, against you, resulting in a negative balance. Emotionally, you have created the perfect roller coaster ride in favor of the markets. Although, you know, intuitively that markets will not go straight up, you have don't like losing money and, therefore, with the trade against you, you will exit if you can just "break even".

During your trading, remember these simple guidelines:

  • Every trade cannot be a winner. Negatives trades are inevitable
  • The closer you are to the market the more negative trades you will have
  • Always start your trading day with a clear slate. What happened yesterday is past. Today is a new day
  • If you have had several consecutive negative days, take a break from trading
  • Having a trading plan instills confidence in you, your indicators, and your trading. Don't trade without one
  • Know at any given moment what the potential risk is. If you cannot tolerate the risk, then do not enter the trade
  • Remember, trading is nothing more than probabilities. Ask yourself what is the probability that this trade will work out?
  • Keep a trading journal so that you can mistakes and correct them
  • Trade what you see on your chart -- not the opinions of newscasters, friends, newsletters, or your own
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