You should never underestimate the importance of psychology when it comes to trading the various markets. Many traders believe they will become a master of trading by reading a book. Others by acquiring or developing some magical indicator or system. The truth of the matter is that it takes years of proper trading education along with experience to become a good trader. Some people do become good traders after putting in the time. The key to becoming a great trader is to master the psychology of trading.
The force behind psychology in the marketplace is human emotion. Fear, greed and hope are human emotions that have taken down many traders. As an example with the emotion of “hope”. Lets say you bought xyz stock. Your xyz stock starts to go against you. The best thing you can do is get out of the stock, taking a small, manageable loss. But you keep watching your stock go lower and lower with the “hope” it will turn around. The emotion of “hope” just caused you a massive loss. The key is to eliminate all emotion when trading the markets. How is this accomplished?
First of all, you need a good sound trading plan to follow. Following your trading plan which includes solid money management is a great start. Then you need to change your way of thinking, modify your behavior. The best traders think differently from the rest. That’s why they are great traders. You need to think in terms of “probabilities” once you have an edge in the market because of your sound trading plan. Winning trading doesn’t have anything to do with being right or wrong on any particular trade because all trades have an uncertain outcome. You will be able to make a fortune over time because of your edge. Concentrate on the process, not the results. The results will take care of themselves.
The world’s best traders and investors can put on a trade without hesitating or having to worry about it. They also can easily admit the trade isn’t working and exit with a small loss. They don’t let fear rule them, but at the same time, they are not reckless. You must always remember that each trade has an uncertain outcome with the odds in your favor. This is your trading edge. Your attitude is key to winning at nearly everything in life.
Gary E Kerkow is Chief Investment Strategist for Tradingmarkets4u. Over 20 years of trading experience including stocks, futures and options. Uses the strategies, methods, techniques and principles of the world’s best traders and investors.
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