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The Psychology Of Trading -

What is The Psychology of Trading?

Your psychological make up will impact every decision you make as an investor. Whether consciously or unconsciously, it will determine what analytic methods you gravitate toward, your tolerance for risk, how you handle the pressure of trading and what specific strategies you adopt WHEN trading.
It’s important to understand that if the trading strategy you devise is incompatible with your personal psychological make up, your strategy is unlikely to succeed.

Here, when we focus on the psychology of trading, we’re really looking at three things (broadly speaking):

1) Intelligence – Your native intelligence is the means by which you understand the trading process. If you lack a keen intellect, odds are that you’ll struggle to become a successful trader. Note, however, that simply BEING intelligent does not guarantee that you’ll find success in the world of investing.
2) Philosophy – Your beliefs (both conscious and unconscious) and attitudes about life will profoundly influence not just your trading results, but the types of trades you tend to gravitate to, and the shape of your trading strategy.
3) And Emotions – Like it or not, trading is an emotional rollercoaster. When you make a profitable trade, you feel a rush of adrenaline and energy. When you make a losing trade, you can’t help but feel bad (or at least disappointed) about it. The key here is that your emotions can get the better of you if you let them. You’ve got to keep a tight rein on them in order to keep them under control, so they don’t get in your way.

In short, trading is a mental, physical, and emotional exercise, and your personal psychology plays a pivotal role in your success. Interestingly, most novice traders have no idea just how important it is. It’s not until you get some real-world experience that its importance becomes apparent.

Sadly, many traders get frustrated by their early experiences and leave the market without even being aware of what the underlying problem they’re having is.
Now that you’re reading this, of course, you are aware of psychology’s role in your trading success, so the question becomes – what, exactly, do you (or can you) do about it? After all, psychology is not dictated by logic and reason…much of it is subconscious, so your intellect won’t be much help in reining it in, controlling or changing it. Understanding a thing and knowing what to do about it are two different things.

Fortunately, the first step in solving for any potential problems is to acknowledge they exist. You’ve got to be aware that there’s an issue (or a potential issue) before you can do anything meaningful about it.

So, first question: Is your psychological make up going to be a help or a hinderance when it comes to investing? To answer that question, we must do two things: Identify the traits and characteristics of successful traders and see how well your own traits and characteristics align with them.

One thing is certain – “Trading will test your emotions, stamina, feelings about yourself and many other things – in essence, it will provide you with an excellent and thorough evaluation of yourself”