7 Ways to Improve Your Trading Psychology
When trading we always experience the two sides of the same coin: fear and greed.
If you’ve ever traded with real money you know that strange tickle when price starts to go your way. Suddenly, you are up a few dollars, maybe even a couple hundred dollars. Yes, your plan was saying, wait until price reach “x” point. However you don’t want to risk it anymore and you just push the button, pull the trigger and you are out with a small “but safe”gain. Only to see that a few hours later your profit target would have been hit and even more.
The oposite occurs when the price is going against you. You simply move your stop loss that becomes wider and wider, because many of us start thinking: “well, price is about to hit my stop loss, but I am sure it’s temporary, if I just move it a few pips away, instead of being stopped out, I am sure price will come back. And that’s how a normal trade becomes a huge loser instead of a calculated risk inside your parameters.
So let’s laid out 7 principles that will help you gain that “zen” like state that is necessary to trade the markers:
1. Trade demo first:
I know I say this all the time, but if more of us would trade demo first, before going live, for enough time to be confident on our own systems, Forex trading wouldn’t be so frustrating for so many as it is today. So take your time, learn the platform, learn your system, experiment, feel confident, win some virtual money before moving to risk your hard earned cash.
2. Have a written plan:
Yes, many of us have a written plan, however in reality, it’s just a letter of good intentions and when the heat of the moment strikes we hardly pay any consideration to it. As Muhammed Alli famously said: “Everyone has a plan until they got hit”. So even after saying all of this it’s of the UTMOST importance to have a written plan and make everything that is in your hands to actually follow it. At least when you don’t follow, you will know exactly what you didn’t do, and next time you will be able to identify what triggers trick your mind into breaking it.
3. Learn when to say “NO”
There’s a common mistake made by many of us that when we had a winning streak, or sometimes, when we are in a good an energetic mood: we tend to see the market and expect it to give us more great and immediate trades. And that’s exactly when the market decides to throw curve-balls at us. Sending less than perfect signals, low volatility, wild erratic swings etc. So, no matter what your mind state is right now, just relax. Go over your trading plan once more, check that the market is giving you the right signal, even a 99% perfect signal, and then JUST THEN decide if the trade is worth risking your money.
4. Become a better version of you before trading
I know this might sound cheesy, but it’s important to understand that if you improve yourself you’ll improve your trading. If you have a good exercise routine everyday, if you go out for a walk before the session starts, if you have good eating habits, if you have good time with your family, etc. You will have a better brain for trading. You will put the expectations and priorities in your life exactly where they need to be. So instead of being glued to your monitor sniffing every pip and blip the market sends you, you’ll have a more rewarding life which will give you the right perspective to trade.
5. Learn to be a good loser
Yes, I understand. To be a loser is almost a taboo in our society, but to trade correctly you must understand that a lot of the times you’ll be a LOSER. Learn to love the big “L” word and embrace it! It’s a VERY important skill in your trading arsenal. We have been conditioned since we were kids to do “everything” to win. But trading simply doesn’t work that way. We are trying to surf the market waves and we simply CAN’T control the markets, so just relax, you are a loser this time, but you definitely need to learn to lose to become a winner.
6. Accept your winnings
This might sound counter intuitive, since we all came to this game to win, right? Well, I’ve found that many traders, and me at some point included, simply don’t accept the fact that winning money can be so simple. When we did things right and the market is on our side, wining is actually very easy. Suddenly we are in the green and unrealised dollars start pouring into our accounts, and then we panic. Our brains are so wired, that we relate money to work, so when money comes with so little work we tend to shock and rush to close our trades too early. DON’T!, just go back to your plan and see what you are supposed to do in these cases (because you have a written plan), maybe trail your stop? Maybe move it to break even, whatever you do, accept that finally so much reading, studying, wasting money, losing trades is paying. So sit back and let your winner run.
7. Stop! You are over trading
As you might know, we are taught to try until we succeed. For example if you’ve ever learned to play an instrument you know that you need to practice: repeat, repeat repeat. Until your body and your mind tame the exercise on the instrument. And that’s with most things, how we learn. But trading is a bit different. Since psychology plays such a big rol in trading. When things go wrong we tend to try to “make things right” and overtrade. Try again ad fail again. You must become an expert in spotting this behaviour. Especially if you are a scalper or day trader. When I day trade I normally set a number of losing trades I can have in a row to call it a day. Maybe 3 or 4 works for me. So if things go bad I just stop, take my loss and just quit trading for the day. That has saved me many times from myself.