Understanding Trading Psychology

When you think of traders you think of these people dealing with numbers and non-stop trading action either on the floor or electronically. In this day and age it is often the latter. While it is true that there has been a lot of traders who have experienced great success, there are also those who have gone broke and left the trading world. The latter are often the victims of poor trading psychology.

What is this trading psychology and why does it seem to play a major factor in the success of a trader? To define it as simply as we can, it refers to the perception or emotional change that a trader experiences or goes through while dealing in any market. In most cases, the money involved in the trading actions is the trader’s own. Therefore you can experience the different emotions and thoughts that a trader feels whenever he gains or losses in any single trading day.

This phenomenon is usually more prevalent with the first time traders than the most experienced ones. Although naturally even the most seasoned veterans are not immune to it, especially when the amount at stake is huge. Because while the trading markets can be predictable, it is however how the traders approach the market, deal with it, plan the strategies, and finally make the deals or trades that make all the difference.

The initial instance that a trader would usually get a taste of the actual trading psychology is when he makes his first ever trade and if he is using his own money. He tends to become indecisive on what he should do next and that’s where he often makes mistakes or just miss otherwise great trading opportunities.

Another example that you can experience this is when you have entered a specific market and started trading there. The first few times everything was going well until you see a downward trend, perhaps not too dramatic, and yet it still makes you doubt the profitability of that market. You then start to consider exiting that market but you just can’t do so, at least not yet until the market have reached a point wherein your exit will net you at least a small profit. In your mind, any profit would do as long as you are exiting it not on a loss. If you have not yet gained considerable insight or experience as a trader, it might end in a disastrous exit for you. Some good traders would even wait until they are really sure that they can get a good profit upon exit.

This idea behind trading psychology is the main reason why every trader is unique. Because if you give two traders the same trading system, the same tips and strategies, put them in the exact same market, you can be sure that they will not get the same results from their tradings. This is again in relation to the psychology of trading which relies more on the intuition of the trader and also with how much emotionally attached he could be to the market he is in.