Module 6. Trading Psychology

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Introduction

The Psychology of trading is probably the most important aspect to grasp for any trader or investor. Your emotions need to be managed and trader's need to understand other trader’s emotions. Trading isn’t all about how to pick entry points after in depth technical analysis and subsequently select exit points. It's also about being able to stick to your trading strategy and thinking on your feet to exit if you have to. Understanding the psychology of money management and the market will help you reduce losses and give you conviction to follow a good trading strategy. Trader's need to understand the overall sentiment or feeling that the market is experiencing at any particular time. Greed, fear, expectations and circumstances are all factors that contribute to the group's overall investing mentality or sentiment. This is why psychology is so important.

Unfortunately trading often appeals to gamblers and impulsive people. If you trade for the excitement, you're liable to make trades with bad odds and accept unnecessary risks.  The markets are unforgiving, and emotional trading always results in losses. Gambler's have a poor stock market trading psychology.  Gambler's feel happy when trades go in their favour. They feel terrible when they lose. A successful trading professional will focus on long-term plans and doesn't get particularly upset or excited in the process of trading.  Their's is one of sound mind investing.

You need to be aware of your tendency to sabotage yourself. Stop blaming your losses on bad luck or on others, and take responsibility for the results. This is proper trading psychology.  Start keeping a diary - a record of all your trades, with reasons for entering and exiting them. Look for repetitive patterns of success and failure. Those who do not learn from the past are condemned to repeat it.  Your feelings have an immediate impact on your trading account. You may have an incredible trading system, but if you FEEL frightened, arrogant, or upset, your account is sure to suffer. When you recognize that a gambler's high or fear is clouding your mind, STOP TRADING!  Your success or failure as a trader depends on controlling your emotions.

In this section we won't delve into "controlling your fears" or how to "find yourself".  There are plenty of self-help books out there to help you stiffen your general psychological state.  However, we will look at how to read the markets psychological state through the use of technical indicators and recognised technical analysis theories.  We'll also study the psychology of money management and how to manage trading positions as part of a trading strategy.

Contents: 

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Introduction

The Psychology of trading is probably the most important aspect to grasp for any trader or investor. Your emotions need to be managed and trader's need to understand other trader’s emotions. Trading isn’t all about how to pick entry points after in depth technical analysis and subsequently select exit points. It's also about being able to stick to your trading strategy and thinking on your feet to exit if you have to. Understanding the psychology of money management and the market will help you reduce losses and give you conviction to follow a good trading strategy. Trader's need to understand the overall sentiment or feeling that the market is experiencing at any particular time. Greed, fear, expectations and circumstances are all factors that contribute to the group's overall investing mentality or sentiment. This is why psychology is so important.

Unfortunately trading often appeals to gamblers and impulsive people. If you trade for the excitement, you're liable to make trades with bad odds and accept unnecessary risks.  The markets are unforgiving, and emotional trading always results in losses. Gambler's have a poor stock market trading psychology.  Gambler's feel happy when trades go in their favour. They feel terrible when they lose. A successful trading professional will focus on long-term plans and doesn't get particularly upset or excited in the process of trading.  Their's is one of sound mind investing.

You need to be aware of your tendency to sabotage yourself. Stop blaming your losses on bad luck or on others, and take responsibility for the results. This is proper trading psychology.  Start keeping a diary - a record of all your trades, with reasons for entering and exiting them. Look for repetitive patterns of success and failure. Those who do not learn from the past are condemned to repeat it.  Your feelings have an immediate impact on your trading account. You may have an incredible trading system, but if you FEEL frightened, arrogant, or upset, your account is sure to suffer. When you recognize that a gambler's high or fear is clouding your mind, STOP TRADING!  Your success or failure as a trader depends on controlling your emotions.

In this section we won't delve into "controlling your fears" or how to "find yourself".  There are plenty of self-help books out there to help you stiffen your general psychological state.  However, we will look at how to read the markets psychological state through the use of technical indicators and recognised technical analysis theories.  We'll also study the psychology of money management and how to manage trading positions as part of a trading strategy.

Contents: 

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