One thing that most novice traders have in common is that most of them trade for a break from their everyday life. Some go bungee jumping, others trade the financial markets - crazier things have happened.
Whenever a person's perception deviates from their expectations, their heart rate inevitably spikes, and some people handle this deviation better than others, but ultimately everyone has a limit.
Trading is a fun game, it gives you excitement, but when you start losing money, the excitement is gone. So how does one ensure that their capital remains intact while still potentially making a reasonable profit?
As I discussed in a previous article, traders need to know how to react to losses and, most importantly, how to resist greed while enjoying the sweetness of a winning streak. I have said that an effective trading strategy, coupled with a money management strategy, is very important to a trader who has the opportunity to stand in a real market environment.
Keeping these two elements in mind can support the trading psychology of traders. As simple as it sounds, traders often don't stick to their trading and money management strategies, and there aren't many who can do it without bringing their emotions into their trades.
expectation management
People use these strategies to make sure they stay in their “comfort zone,” so to speak. A trader's expectations need to be established to a certain extent, and it can move up and down; this always implies a degree of risk. When traders step out of the comfort zone of their trading strategy, they will inevitably start to get nervous.
The main premise of trading psychology is that the calmer you are, the better your trades will go. If you're in the middle of a trade and things don't go according to plan, the worst thing you can do is panic - which will only lead to mistakes and more losses.
The most common mistake novice traders make is to panic whenever their trading strategy is not going the slightest way, and to double down on their investments when they run into trouble. The equivalent martingale strategy states that traders should desperately double their investment on their next trade to recover their losses.
The problem with this approach is that while you are bound to win some trades, again, the market will move longer than you can keep your money flowing.
Veteran trader Peter Brand has more than 5 years of trading experience. He has a famous saying that the first challenge a trader faces in the financial market is to learn "how to lose money correctly."
avoid distractions
Traders who start trading with a demo account have never experienced a real trading scenario where the other side of the coin awaits them. Imagine a person playing poker with virtual money - how much pressure do you think the player would have? Trading conditions rarely change from a demo account to a real account, but what is measured in real trading is a trader's ability to cope with the pressure of losses.
A common technique to help people take their emotions out of trading is to ignore the area of the trading platform that shows the current profit and loss. Using the changing profit/loss display as a barometer of a trader's trading sentiment, the only thing we should be interested in is a trader's monthly profit and loss. Any profit or loss of less than a month will distract the trader from making bigger profits.
Greed is also a major mistake that ignorant traders make. Let's take the example of a poker player with a starting bankroll of $5,000 and a simple game plan. About an hour later, this player had the chip lead at $20,000. Most people will start taking more risks to sweep the situation or take the biggest profit, but he forgets how he made $15,000 in profit in the first place-by patience and consistency.
But the problem is that in the scenario above, the player is purely lucky. And as long as the trader sticks to the plan, the thrill of luck is removed. We talk about consistency and detailed calculations in order to reduce risk and increase the possibility of profit. When 90% of traders make decent profits, they often forget what made them profitable in the first place: trading strategy, money management strategy, and a patient mindset.
And as always, consistency is key.
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