Trading psychology is a vast and complex area of study. This is because most people are unique in what will cause them to have certain emotional reactions. In this Wiki, we will take a look at some more general trading psychology and some ideas that have shown to be useful for many traders.

General Trading Psychology

The 3 “P”s

Be POSITIVE:

No one wins all the time!
If you want to improve your results you must make small course corrections through your trading results and feedback.
Hardships and losses do not equal failure.
Loss are stepping stones to your success.
A losses is down payment on your next winning trade!
Learn to unlock the lessons in your losses and you will unlock the door to success.
You must learn to crawl before you sprint.

Be PASSIONATE:

Get excited about your trading business.
Feel that you are on your way to becoming a master trader.
Each trading day is a gift for you to discover something new and potentially profit from.
Try to believe that the market exists for one reason and one reason alone: To serve you!
Having controlled enthusiasm is the key.
Have fun and enjoy the process for when you look back on it when you are a true professional you will be able to see all the things that you thought were a waste of time then that turned out to be the reasons you succeeded.

Be PERSISTENT:

Every hardship and loss carries with it a benefit that you must learn on your journey to becoming a true professional trader.
It is simply not possible for you to fail until you decide that you have failed and given up.
Think of persistence as being like a cork. If you put a cork in a glass of water it will float. Even if you push it down the cork will keep pushing back at you until it finds a way around your blockade and floats right back to the top. The cork is the most persistent object on earth. No matter what you do, the cork will find a way to get back on top. Be like a cork! If you have to, tape a cork to your trading screen so that whenever you hit a rough patch you will know in your heart of hearts that you are a cork and that this rough patch will too pass because of your unrelenting resolve to succeed. Be a cork!

Productive Approaches to Losses

Remember that no one wins 100% of the time. This means that you will have to learn to accept losses as part of the trading game. These losses will always come in the form of a well thought out stop loss policy that was determined before you ever entered the trade.

If you are holding overnight or over the weekend positions there is always the possibility market may move or gap significantly against your position and cause larger losses than you may have intended. Do you have a catastrophe plan? If not, think about making one because there is nothing worse than losing more money than you intended and not knowing how to handle this larger loss.

Every loss is a step towards your goal of becoming a consistently successful trader. There is something to learn from every loss that you have. Make no doubt about it, the lesson is there. Make it a goal to find at least one lesson from each loss. Did you make a mistake entering or exiting? Did you miss a key news point?

Write out and keep track of all the lessons that you have learned. Study these lessons repeatedly to see if there are any common errors you are making that can be easily fixed. If the errors are a result of your method then you may need to adjust your trading plan to accommodate this new discovery.

Each trade should be completely independent of one another. No prior trades should ever have an effect on the current trade you are in because they have nothing to do with one another.

Never carry any baggage over to your next trade. After a loss, you will need to learn to reset yourself back to zero before you place a new trade. If you have to, give yourself a break and step away from the computer until you are ready to come back fresh.

Victim Mentality

Having a victim mentality is one of the worst reactions that anyone can have in regard to anything in their life, especially in trading. People who feel that the market is out to get them are extremely weak-minded. This limiting belief is one that always allows for the trader to have someone else to blame for their own shortcomings. In effect, the trader with the victim mentality will never have to admit that they were wrong about any particular trade.

Self-pity has no place in the master trader's world and does not serve any positive purpose. If you are feeling bad or upset about a trade it would serve you much better to take a break and come back when you are ready to learn from that loss. Remember that your last loss is a down payment on your next win!

Realize that you and only you are responsible for every trade that you take. If you place a trade on the advice of someone else, guess what, you made the ultimate decision to place that trade. You are in complete control of every trade you take and you alone have the power to make your trading decisions. Having a victim mentality will only serve to be self-fulfilling so don’t fall into that trap.

Control Your | Emotions]]

It is very important to make sure you have calibrated your mind for success before you place a trade. Take stock of your emotions and how you are feeling before and during a trade. What is your physiology like? What is your mind focused on? Are the answers to these two questions conducive to good quality trading? Make sure that you are being objective in your trade management.

Control what you can control and let go of the things that you cannot. You have the power within you to control your emotional state while you are trading and should never invite negative feelings into your mind during a trade.

Make sure that you have a plan that is strong enough to answer anything that the market throws at you. Always keep objective while analyzing the sentiment and price information and look to update your trade management should a new catalyst hit the market that is contrary to your trade.

Don’t count the dollars that you are up or down while in a trade. Doing this is one of the quickest routes to confusion and emotional instability during a trade. If you absolutely need to, find a way to hide the blotter that shows your profit and loss of your open positions. This takes away any temptation that you may have. [Sentiment_Analysis#Profit_Taking | Profit]] and loss should never be the reason behind your trade management.

Mental Rehearsal

The mind is not capable of distinguishing between something that is vividly imagined versus something that happens in the physical world. The mind can only understand the stimulus that is fed to it. The source of that stimulus is not relevant to the mind.

It can be quite beneficial to have a pre-trading visualization exercise that you do for 10 to 30 minutes right before you begin trading. This can be done right before bed as well. The key is to run over your trading plan for the day in your mind and try to see and feel how you will react to the situations that you will be faced with.

See as much detail in your visualization as you possibly can. See the charts setting up and then running in your direction. See your [Sentiment_Analysis#Profit_Taking | profit]] statement at the end of the trading day. Feel the feelings of trading successfully and see yourself as a true master trader.

Make sure that you are organized and focused on the tasks at hand and take stock of your emotions prior to trading.

The Subconscious Mind

To become a professional traders you need to have your subconscious mind engaged in your trading. You can do this by imagining that your conscious mind is the captain of a ship and your subconscious mind is the crew that is taking directions to help steer the ship.

Make requests to your subconscious mind before retiring at night and write those requests down so that your conscious mind can continue to remind your subconscious mind about those requests.

You must work hard and work smart but you will need to take time off to recharge and allow all your hard work to be picked up by your subconscious mind.

Refer to the 4 stages of competence section again and you will be reminded that the highest level of trading mastery comes at the point when your conscious mind no longer is a requirement to have great trading performance. The goal is to become unconsciously competent.

Train your mind to look for reasons to stay in or add to a position that is [Sentiment_Analysis#Profit_Taking | profitable]]. Your mind should look for reasons to get out of a trade if it’s not going in your favour.

Beliefs

Your current beliefs are an accumulation of all your past experiences and influences. They are built both directly and indirectly into your mind. They are filters that your mind can perceive in the physical world and can act more like a deletion filter. Your mind makes it so that you will only see what is in alignment with your beliefs so that you can confirm to yourself that they are true and/or you are right.

Your beliefs must be evaluated on how useful they are to your trading success, not if they are right or wrong.

You have the power to change your beliefs. Don’t get stuck in the trap of trying to prove that your beliefs are true or correct. You need to change your beliefs so they are conducive to making money in the markets. What really is your reality? You need to decide and make that choice. Beliefs are something that you can change.

Here are a few beliefs that can empower your trading if you truly believe them:

Life and the Universe we live in are perfect!
The markets are my friends and are here to serve me!
Losing trades are stepping stones to my goals and dreams.
Everything that happens in the market is perfect and as it should be based on the collective thoughts and actions of all investors at any given time.
There are no limits to what I can do in the markets.
My path and journey to trading mastery is one of the greatest experiences in my life.
I will not fail!!!

The Mind of a Losing Trader

The losing trader thinks that making money trading is easy and therefore doesn’t think any advanced education is a necessary component to becoming successful. The reason that the trader may feel this way is that they may have had many prior successes in business before and believe that trading should be no different. The problem is that these successes likely won’t help you in trading because there are few simple and direct answers to questions in trading. You need to be constantly in tune with the market to be successful and that means analyzing new sentiment-driven information frequently.

Few people give enough respect and treat trading as the business that it is. Most traders drift through the trading day with no particular plan of action. They will tend to chase markets up and down and have no standard set of rules for why they do what they do.

Losing traders usually have no money management rules and as a consequence tend to suffer large emotional swings while they are trading and are nervous most of the time about their [Sentiment_Analysis#Profit_Taking | profits]] and losses. They fear the [Sentiment_Analysis#Profit_Taking | profit]] will disappear and wind up taking the [Sentiment_Analysis#Profit_Taking | profit]] way too early and are too scared to take any losses. A loss will mean that they must admit they are wrong on a particular trade and this is something that their ego doesn’t agree with.

Another problem with losing traders is having too much information or being addicted to trading systems. This can lead to never sticking with one system which is called switching. Switching is where you have a strategy, trade it and it doesn’t really work, ditch it, and then go on to find a new strategy. This process repeats until your library is full of trading courses. Each and every strategy that you were sold on tells you that this is the last strategy you will need and it has everything you need to become successful in the financial markets. You quickly realize that it’s not that simple and move your search to the next surefire thing. This cycle locks you into a constant stream of losing strategy after losing strategy making it impossible to consistently make a [Sentiment_Analysis#Profit_Taking | profit]] in the markets.

Switching is a major cause for losing traders having no conviction in their trading methodologies. Conviction is confidence and the best way to build confidence is to succeed at something consistently over a sustained period of time. If you constantly switch systems, you will never gain enough confidence to make it as a trader.

The losing trader typically relies exclusively on Technical Analysis or indicators to make their trading decisions. In the Forex market prices are driven by the fundamentals of countries and the policy action the central banks are taking to grow their economies. If you ask any big city Forex trader what indicators he has on his charts and he might reply something simple such as volume. The professionals do not rely on a bunch of spaghetti on their charts to make decisions. They trade in line with the central banks and get out when something changes fundamentally.

Exclusively using Technical Analysis for coming up with trading ideas is for the retail trader, not the winning professional trader. However, Technical Analysis can have some small use as a timing tool to get into a trade in the direction of the prevailing fundamentals and sentiment.

In the financial markets, traders should never forget that they are competing against other traders, professional and novice, and the only way that you can continuously make money is by being smarter and more disciplined than your competition. You are competing against some of the brightest financial minds in the world and they want your money!

The losing trader quickly loses and returns any recent gains to the market. After a large win, the trader's standards begin to drop and complacency (greed) takes over thinking that this will always be easy. They get an adrenaline rush from the gain and want to duplicate it and start counting all their gains before they have booked them in the bank as [Sentiment_Analysis#Profit_Taking | profit]].

The losing trader desperately tries to recoup any losses as fear sets in and the money lost is setting off such frustration that the trader needs to erase that loss in his mind and on his trading screen at all costs. They will usually take on bigger positions or more positions, doing whatever they can to quickly erase the loss that just happened. Changing trading standards to allow for more trades will usually end in more losses and decreased trading performance.

Losing traders will stay glued to their screens all day trying to force trade setups that are of lower quality than their trade plan allows for. They spend very little time preparing for a trading day and almost zero time following up on their trading results.

The losing trader always has excuses for why he or she may have lost which are never their own fault.

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