Trading Psychology the key factor in your trading 

       Trading psychology is the key factor to becoming a winning trader. Humans are not wired to trade effectively, so we must attack the mental game as hard as we do when learning the markets and trading setups. Psychology is one of the basic components of trading along with trading strategies and money management. Psychology is a subject that best helps us understand human nature and emotions. It helps us to know why people feel, think and act the way they do. One of the main reason why technical analysis works is that human nature and emotions remain the same irrespective of era one is in. People were greedy and fearful even a hundred years back as much as they are now. 

Trading Psychology

Overcome your fear

         When we place a trade in terminal and its move opposite to your expectations, this is the moment when your fear take over your trading plan and you start panicking. Fear manifests itself in trading by making it difficult to pull the trigger on a trade, exiting before hitting targets, pulling out of trades before the stop is hit and other micro-managing issues. If fear is showing up in your trading, reduce your risk. The smaller the potential loss, the less scared you are of the trade. e.g : you trade with risk of Rs 1000/- per trade reduce it to Rs 500/- per trade. 

Overcome your greed 

       Greed is opposite of fear. While we love the challenge and strategy of trading, ultimately we are in this game to make money. This makes us greedy. 
       Example 1, let's say you enter in stock suppose Reliance @ Rs 1140 with a target under Rs 1160 as you see resistance at Rs 1160. As soon as your stock Reliance hit Rs 1160 you start thinking it will hit Rs 1180 and you will book double your profit at Rs 1180. This sounds great but you set your target at Rs 1160 for some reason only.Your stock will likely pullback at the resistance level. Thus, pretty soon that Rs 20 profit is Rs 10 or you lose it all. Greed turned a winning trade into a loser. Fix this trading psychology by taking partial profits. In the current example, take half off at Rs 1160, move your stop up to Rs 1150. This keeps you strategically sound while also letting your greed play itself out in a positive way by booking partial profits and revising your stop loss. 
       Example 2, The trader thinks if he can make Rs 1000 off 50 shares, by doubling the position he can double the profit. While this is true, he is committing trading suicide because not only is the trader increasing potential profits, but also potential losses. A small drawdown no longer is insignificant, but leads to losses that are hard to come back from. The way to combat this common emotion is to religiously stick to your risk rules. If you have identified Rs 500 as your max risk, you will never take a position size that increases that risk. This is the only way to protect your account. Remember, winning traders play defense before offense. Thus you can overcome your greed in trading by reducing your position size. 

Focus on the process and not short-term results

      . While we analyze every trade, our overall guiding focus should not be gains and losses in the moment, but over time. Don't worry about that one loss. This leads to recency bias that will create havoc with your mind. Remember, in the grand scheme of your trading, that one loss is meaningless. Instead, think about, no obsess about, the next 100 trades. This will keep you focused on the process and not short-term results. Remember, we are trading probabilities and sometimes you will lose on good trades. A drawdown does not mean you are trading poorly. Do not let good trades with poor short term results impact your trading psychology. 

Stay away from noise

      Nowadays internet and TV provides as a plethora of market analysis and opinions. There are literally hundreds of sites and dozens of TV channels that will tell you what the market is going to do next. Develop your own trading system / strategy and strict to that (it does not mean you should stop learning new things). Once you shut out all of the “noise” you could interpret the market for yourself and no longer relied on other people to solve your problems. Which funny enough is the same reason you can become successful in life. 

Keep a winning attitude

         If you approach the market from a negative perspective, you will lose money. Negative does not mean you expect to lose, but you may have a lot of fear in your trading or have not fully accepted the risk. Reviewing your trading journal will help you navigate times when you fall off the rails.You can only win if you approach the market with a can do attitude. This does not mean you approach the market with an “I am right” attitude, but you fully accept that you will get whatever the market is willing to provide.

 Market is supreme accept it

       Understanding that the market is supreme is probably the key principle of becoming profitable. It only takes one trader with enough capital to completely invalidate your analysis. It doesn’t take a herd of people yelling and screaming on the floor or placing thousands of trades over the internet. It only takes one person somewhere on planet earth to decide that the stock should go higher or lower.So, where does this leave you? I will never tell you to not perform some level of analysis, because I believe in technical analysis. What I am saying is you must remove any emotional attachment for what the market can or will do next. You have to believe that the market will and can do anything.


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