Trading Psychology And Discipline

Trading in Forex and Stock markets is not only about the knowledge and
understanding of the fundamentals or technicals. Trading is an art in
itself. Even with a great knowledge and understanding of the market,
you may find yourself continuously losing in your trades. You may know
that the market will go up and you buy. Instead of going up the market
starts moving down your stop-loss order closes your trade. The next
minute you see that the market starts moving up, the way you had
analyzed. You end up with a loss in the previous trade and now you are
worried to buy again though still you have the feeling that it will
continue to move up. It keeps on moving up and now we are just
frustrated about our not taking an action of entering the market and
also the unnecessary loss (because we put the stop-loss too close) in
the previous trade. We just buy a bigger position out to make up. This
time we put the stop-loss order too far. The market had already moved
up quite a bit and as soon as we bought it does a free fall. Our
stop-loss was too far and Oops!


The emotional feelings, fear, greed and many times the addiction to
trade can just kill what we have in terms of market knowledge.
Psychological factors and sentiments greatly affect the performance and
hence the results because of the dynamics of the market. When we talk
about psychology, it's about both, the mass psychology of the traders
around the globe and our individual psychology.


Mass Psychology:We do not have any control over
the mass psychology but an awareness and understanding of it can help
in what decisions we take at what times and situations. One example of
mass psychology in the normal times is given in another article on the
page by the name "Number Psychology". Other examples can be seen in
panic situations. The mass panic can fail all our analysis - weather
fundamental or technical. In this article we will be talking about
individual psychology.


Individual Psychology:

Let's start with the most common mistakes which can either wipe our profits
or prevent us from going into profits ever. We all can make one of
these common mistakes in our trading career once or even more than
once. The killer of a trading career is to make one or more of these
mistakes as a pattern. To kill our pattern, we need to understand our
pattern and this can only be done with the thinking and analysis with
completely open mind as knowing ourselves, many times, prove to be more
difficult than understanding others. We need to understand ourselves
first to understand our actions and reactions and then to control the
undesirable actions and reactions.


So lets' see what are killers:1) Always entering the market against the Trend.

2) Entering the market in the direction of the trend when its too late.

3) While losing, increasing the positions in the same direction.

4) Trading addiction and trading by feelings.

5) Stop-loss orders too close or too far.

6) Take-profit orders too close or too far.

7) Learning from the past mistakes and then making a bigger mistake.

Loving our trades and bias for the figures.

9) Trading too big for your account size.

10) Varying the position size of your trades.

11) Not looking at the both at the long-term and short-term picture of the market.

12) Not using the stop-loss order- THE ULTIMATE KILLER (you can do
all mistakes and still survive but you do this and you have invited the
death of your account).