The psychology of trading the markets is something that very few people really take into account when they take up trading the financial markets. But it is actually a crucial skill to learn, and can be the difference between you being a quite clueless trader to a highly successful one.
All the really top traders know about the psychology of trading the markets, because they have been through the school of hard knocks and come out the other side still living. It goes with the territory of trading that you will often start very well, make some excellent profits, then all of a sudden, although you seem to be doing nothing different, you have a terrible run and are at risk of losing the shirt off your back!
And this is because trading the financial markets is not an exact science. Some days your system, if you have one, will win, and sometimes it will lose. The key is to make sure that when you do lose you keep your losses to minimum, and when you win you win with a healthy profit. This all sounds rather easy in cold print, after all, the markets can only go up or down can`t they?
It is not so easy because although in one day the GBP/USD will go down for instance, it does not go down in a steady line but goes down in a swinging fashion. So if you have a stop loss that is too tight you can get stopped out, or if your stop loss is too loose you run the risk of the trade turning and leaving you heavily out of pocket.
So you need to work out your level of risk carefully on each trade you embark upon, calculate your profit to loss ratio, work out how much of your starting bank you can afford to lose in one trade, and then trade accordingly. You must keep a clear head at all times and keep a tight rein on your emotions.
If you have set up a trade and it starts going against you, you must under no circumstances move your stop loss further away so as to stay in the trade as this is a recipe to disaster!! If you know anything about the psychology of trading the markets you will know that people will often do anything to avoid a losing trade, including moving their stop loss around 10 times until they finally run out of both the will to live and their money!
A huge part of trading psychology is knowing how to deal with the inevitable losses that come your way. You must learn to deal with them in a logical and rational way and wait for the next opportunity to trade. Incidentally, the worst thing you can do after a bad losing trade is dive straight into the markets again and trade. You are being impulsive and rash, and you must only trade when you are in a calm and even mood.
If you want to learn a lot more about trading, and also get a copy of a brand new trading system at no cost, then please take a look at http://www.tradingstrategiessite.co.uk/.
No comments:
Post a Comment