Trading Psychology – 5 Points To Follow For Successful Trading
Everyone wants to become successful in whatever they are doing and the same applies to Trading. There are many traders/Investors who start learning different methods of analyzing the Markets and out the many, few become successful in making a strategy for trading, few still keep trying hard to develop a strategy and few leave the market after incurring losses and thinking that this market is not for them or its not possible to make money in this market. There is a distinct category of traders who are among the few who stay there in the markets, make it a career, excel in the same and continue to do so successfully time and again. So, what makes them distinct is not only their strategies but their mindset towards the markets and their Psychology. They have the mental ability to fight their emotions and are successful not only because of their Trading systems or Strategies or because they have more capital ; They are successful because they have fought the biggest battle in Trading and that is the Psychology. Below are the 5 Points to Follow For Successful Trading.
Patience is very important in Trading as markets are ever changing in nature and it takes time even for seasoned Traders to determine a change of trend or any setup that is taking shape at a particular time in the markets. Markets are there to keep going up and down and at times staying range bound while giving wild swings at some other times. If we do not have patience then we may at times become victim of losses due to entering at a wrong time or exiting at a wrong time. Lets say that we enter a Long trade in ABC stock and it stays in a range of 100 to 105 for 2 weeks and we become restless as we expected it to move to 125 in 2 weeks. We loose the patience and exit the trade at 104 and in the 6th week the stock zooms to 138, even higher then what we expected. If we would be patient then we would have made even more money then what we had expected but our restless nature made us exit with little profits. Here is a quote from Jesse Livermore – “The reason is that a man may see straight and clearly and yet become impatient or doubtful when the market takes its time about doing as he figured it must do. That is why so many men in Wall Street, who are not at all in the sucker class, not even in the third grade, nevertheless lose money. The market does not beat them. They beat themselves, because though they have brains they cannot sit tight.”
2. Non Bias
Bias plays a major part in incurring unwanted losses in trading. The markets may not always move as per our assumption or analysis and its very important that we do not keep a Biased approach in trading. If we enter a Long or Short trade and see the market going in the opposite direction then its better to exit on our stoploss rather then removing the stopoloss and being biased that the fall or rise may be temporary and the market will once again move in favour of our trade.
3. Be Objective
We tend to enter into a trade just because we feel that the Market may cheer a positive announcement the next day but that is not the case. Unless and until you find sufficient logical reason in your charts and you are able to make a precise trading plan for the same, do not enter a trade. Ask yourself if a trade that you are about to enter into fits all the criteria of your trading plan ?? Write down all the points to be noted before you enter the trade. Remove external noise such as News or Results etc. and be just Objective in your approach. Keep the Eye on the Ball and Head in the Game !!
4. Remove the Ego – Remove the “I” in trading
We all humans are made as such that its very difficult for us to admit our mistakes. The mistakes can be small or big and if done in any other field would result in a broken relation or would hurt someone etc etc.. But when it comes to trading, not admitting our mistake and repeating them again and again results in consecutive losses and nothing else. The markets punish our ego instantaneously in the form of losses. When we see that a trade is going against us then instead of holding on to our EGO that we cannot be wrong ; its better to do some deep thinking and analyze what went wrong and admit the wrong and try to correct it the next time. Successful traders have a nature that does not have EGO in it.
Focus on what is more important. Develop a habit to see the long term picture on long term charts as the larger time frame gives you a better picture of the trend. Even in the best of trending markets, there can be days or even weeks when there are range bound or volatile moves which might lure you to exit your positions way to early before the Uptrend or Downtrend finally finishes. Remember that the markets don’t take a U turn all of a sudden. It takes time for the trend to change and the changes are gradual. Stay focused on the moves and do not withdraw from a trade due to some momentary changes in price or else you can loose a winning trade that can fetch you bigger returns .
Trading is a game of probabilities and more than anything its a battle with our own self. A person who can win over his own self can very well be successful in trading.