Psychology of Trading: Tips & Help

Psychology of Stock Trading

Much like anything out there, if you can’t keep your emotions in check, you’re going to have issues. It doesn’t matter if you’re a professional baseball player, a babysitter or a bus driver – you have to keep a level head and focus on the task at hand. The importance of focus is crucial at every level. When dealing with making and losing money, emotions can range from extreme happiness to deep depression. The thing is, you don’t want to let your emotions take over your rational mind when money is on the line in a trade. Stay composed, stay focused! As a trader, you must accept that you will win and you will lose. It’s imperative that you learn how to keep your emotions in check when trading so you can trade with your purest thoughts. 

Fears and the demons of trading

There’s a lot of fears traders have, or develop when trading. One of the most devastating fears that traders have is FOMO (Fear Of Missing Out). It’s definitely not a good strategy to have as a trader, so do your best to avoid succumbing to FOMO. Fear can develop bad thoughts, and create unwanted habits that can wreck a trading account, we call these bad thoughts the Demons of Trading. When trading the market you must do your best to eliminate fear. That doesn’t mean trade recklessly, there’s a big difference there. A good way to crush your fears is to set rules that will eliminate big losses. Big losses are what traders are afraid of. So if you eliminate the possibility of a huge loss, it will help you tackle your trade with confidence. Keep yourself in the driver’s seat when trading, and follow the rules of the road!

Demons of Trading

Follow rules!

Having a set of rules you can follow when trading will help you treat trading as a business. Many traders, or people who aspire to be traders, do it out of a need to gamble. Don’t be a gamble trader! It is important to manage your positions based on your own account goals and targets. Your risk tolerance may be more/less than other traders. Our rule of thumb is to always take your profits!

We find it best to have a plan going into any trade. This means, knowing where to stop out and where to would take profits. If the trade doesn’t work how it was expected to, then it might have failed, and it’s best to move on and focus on something new. On the contrary, if the profit goal has been met, then it would make sense to close the position and take the win.

Here’s three simple rules we recommend setting for yourself, or at least looking into them:

  • 1. Have a plan BEFORE you enter a trade, write it down if you have to.
  • 2. Set stops and stick to them.
  • 3. If you hit your profit target, take the profits and call it a day. If your trade hits your maximum loss, seek shelter and call it a day.

It’s important to remember that there will be more opportunities to trade the next day and beyond.

Stop being greedy!

Have you ever heard the saying: “Pigs get slaughtered”? Well, it’s true. Greed will prevent you from taking profits, and will cloud your mind from making the right decisions when you must make them. Do your best to understand greed and don’t develop the nasty habit of holding on to a winner for too long. Eventually, the trend reverses and the greedy get caught, without profits, and sometimes with a big loss instead of the winner you could’ve realized.

Greed is definitely not easy or simple to overcome. Everyone wants more, and everyone wants to do their best and maximize the trade. The thought of getting rich quick is what many beginner traders strive for, and that’s greedy. You have to find it within yourself to avoid greed when trading. It’s a marathon, not a sprint and over time, a little becomes a lot.

Final thoughts

It’s important to remember and realize that successful investors and traders are able to control fear and greed, the two visceral human emotions that drive that sentiment. We believe that if the trader digs deep within him or herself they can unlock their true potential by controlling these emotions when trading.

If you find yourself having trouble controlling emotions, take a break, free your mind and do something that makes you happy. When we have bad trades, here are a handful of activities we like to do:

  • Golf with friends
  • Meditate in a peaceful place
  • Go fishing
  • Go on a long bike ride
  • Get your green thumb going and garden
  • Count your blessings
  • Build something / DIY

“Don’t let success get to your head & don’t let failure get to your heart”

If you have any questions or comments about trading psychology and emotions, feel free to use the contact form below to get in touch with us!

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