Psychology of Trading: The Hidden Influences

Psychology of Trading: The Hidden Influences That Shape Your Decisions

 By Jacob Gifty

This blog post is intended as a general guide for traders to better understand trading psychology, how it affects trading, and how they can apply psychological trading skills. Trading psychology is the mental state that one experience during trading. Trading psychology is just as important as your knowledge or trading skills, and your mental state can affect your ability to trade well. Psychological trading skills are often overlooked but play a crucial part in a successful trader's skillset. The psychological influences that affect trading are subjective and may defer from person to person. However, there are still some universal factors that determine how people conduct their trades. Some of these factors include fear and greed.


Greed: Greed is one of the most common emotions among traders, and it can lead to irrational decisions. Greedy traders are never satisfied with their profits and will often hold or add to a position even when the trade is no longer profitable. When greed overpowers logic, traders tend to double down on losing trades or use excessive leverage to attempt to recover losses.


Fear: Fear is another factor that traders experience. Traders can become fearful of entering the market and this could be due to lack of experience or after experiencing series of losing trades, and or losses that are too large for them to emotionally handle.


Trading Psychology 

Trading psychology is a technique or philosophy that may help you improve your trading psychology as well as your trading decision-making. To improve your trading mindset, you need to understand the concepts of trading psychology. Trading psychology is a way of managing fear, impatience, and greed that is incorporated in professional traders. These are the three common psychological traits among successful traders, and they all form a very necessary part of a trader's success.


It is extremely easy to become unsuccessful when you don't have the right mindset. The most successful trader in the world is Warren Buffett and it’s fair to say the reason he is successful is because he has the right mindset. When you are determined to become successful, it is important to have a clear view of what you want out of your trading career and it’s also important to remember WHY, why you started trading in the first place.


Trading Psychology and Attitude

Trader’s attitude plays an important part in decisions making. Developing a trading attitude is a crucial factor in the successful trader's mentality. With the mindset of an experienced trader, you will no longer get affected by the wrong emotional factors that may hinder your trading ability. Having a positive attitude enables you to feel more comfortable and confident in decision-making and having the ability to bounce back from the pressures of a highly stressful trading environment.

Take away tips:

  1. Put aside your ego. Accept your wins and losses even if you lose more than you win. With discipline and proper risk management, it’s possible to bounce back and grow your account equity.

  2. Do not trade for the sake of trading. Trading is a business, and you need to trade with a reason and a purpose. Think of the long term, take only what the market gives you in line with your trading strategy.

  3. Bring a positive attitude to the markets. Keeping a positive attitude in the forex market can be challenging. Well, it doesn't have to be when you remember the following: Maintaining a positive attitude will keep your mind clear of negative thoughts and helps you stay on top of trades.


Share your thoughts!

How do you overcome greed and what mental techniques did you apply to stay patient? Let us know

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