The Psychology in Trading

A big mistake that beginners make when they start learning about trading is that they assume that by the mere fact of developing analysis skills, both technical and fundamental, they will reach success. In fact, learning to control emotions is the most important skill that allows the trader to be successful, because emotions have the greatest impact on your results.
Success in trading is not achieved through a single trading operation, but is due to a number of operations that use the same strategy. This means that the trader must be disciplined enough to stick to his strategy, even during a bad patch.
However, human beings do not always behave logically and in many cases emotions influence us and we act differently than usual. The success of a trading strategy is determined by a number of trading operations. A successful trader must stick to the rules of his strategy and not let emotions get in his way.

Do you remember the last time you were very angry? Maybe you would do something and your actions would surprise you. And even if you later regret it, at that time you probably could not do anything and also, in the future you are predisposed to act in the same way if you get angry again.
This is because a person’s psychology is composed of thoughts and feelings that incite them to act, so that psychology molds our behavior in every aspect of our lives – and trading is no exception.
Emotions are inevitable – especially for a new or inexperienced trader, and can prevent you from making an objective decision. For this reason, learning to control emotions becomes fundamental to successful trading, far above everything else.


When a trader thinks clearly and does not allow himself to be influenced by emotions, he is said to be in the zone. When you are in the area, you have control over your behavior and are able to follow a trading strategy in a logical and systematic way.
For some traders it is easier to be in the area, but those who are more difficult to learn can control their behavior and get emotionally detached from trading activity.

Emotions that influence trading

The emotions of trading that have a negative impact on results are greed and fear. These emotions cause a trader to deviate from their path, which can lead to more problems, such as ego and vengeful trading.
The following are examples of these emotions and the explanation of how they can adversely affect trading results.

The fear of losing can lead to additional losses.

The fear of having losses can lead to even more losses. The typical behavior of a trader will be to close trading operations before, either when an operation experiences a loss or a small gain, and not to let the trading operation follow its full course.
When a trader is afraid of losing, try to avoid it. And in fact, this can increase your losses.
For example, a trader can open an operation and place its loss cap, let’s say, at 20 points from where it is now – based on the strategy it uses. In other words, there is a technical or fundamental reason why it is located where it is.
However, a trader influenced by fear will surely close an operation prematurely, simply because it temporarily goes against him. So if the trading operation goes against you, let’s say for 10 points, then the operation ends with 10 points of losses. If the operation was going to be favorable, then the trader has returned that winning operation to one with losses due to his fear.
Another situation occurs when a trader closes its operation as soon as it begins to give benefits, due to the fear of losing those benefits. This means that the trader has reduced the total benefits to a small profit.
This behavior ends up turning a beneficial strategy into one that ends in losses due to the fear of losing.
Greed leads to trying to get too many benefits and end up with much less.
When a trader experiences greed, it means he tries to go for too much profit and deviates from his strategy.
For example, a trader could place his profit target according to his strategy.
This means that – when a loss limit is set – there is a reason, technical or fundamental, to do so.
However, when greed influences traders, they do not close their trading operations when the strategy tells them they should – they try and go for more. What happens is that the operation can turn against you and end up with fewer benefits, or worse, losing the operation. This means that they are in fact responsible for reducing the profitability of a strategy by trying to increase profits through greed.

An ego-influenced trader will never admit that he is wrong.

The ego can affect the trader by not letting the trader close trading operations when the strategy tells him he should close them, or making him continue with the same trading analysis even if the transaction has stopped, because deep down he thinks he was right since the beginning.
For example, if the trading operation does not go well, instead of closing it according to your strategy, you will still get higher losses because you can not admit that you have made a mistake.
Another situation could be that in which after obtaining a loss after a perfectly good trading operation, the trader does not fix the next adjustments according to his strategy. And instead, he continues trading operations based on the original analysis, because he believes he was right from the start.
The vengeful trading is to pursue the money you have lost in a trading operation due to the psychology of the brain.
Retaliatory trading occurs when a trader pursues the losses he has had – he is so focused on recovering money that he fails to realize that he is not operating with a set of rules and that each operation ends up being another loss.

The importance of the discipline in trading

To avoid being emotionally influenced by trading, you will have to create the discipline that will allow you to think as objectively as possible. This is what I teach my students when I work with them personally in my personal trading coaching program. There are several ways to achieve it:

Operate with proven and tested trading strategies

It is much more likely that you feel calm under pressure if you trust your trading plan. If a strategy has not been sufficiently tested, you might be left with doubts that would lead you to fear.

Trading in with Demo Account

Having confidence in your plan will help you to be calm under pressure. Test your strategy with a demo account and accept the risk.
The tests and the development of a strategy should be done in a test account before doing them with real money. Using real money creates more pressure, which will eventually increase the negative emotions involved during the trading activity, which can lead to higher losses.

Accept the risk

A strategy with a 100% profit ratio is not realistic. You must be prepared to accept losses. It is normal to expect each operation to be favorable. However, inexperienced traders are predisposed to experience a greater emotional impact when they lose.
On the other hand, a profitable trader is able to accept the losses as part of the trading strategy and move on to the next operation, without letting greed or fear affect them in their future decisions.

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