Trading psychology

Many blogs or websites have nice articles on psychology and trading, far better i could write on the subject, especially on this website.

So i will simply speak of my own experience and sensations when i'm trading... winning... or losing.

Get in the pit

Anyone can make an analysis of a currency and predict it will increase or decrease with targets and levels. But it's absolutely not the same thing than saying it will increase and open at the same time a long position.

A sound analysis must preceed a position into the market because as soon as you have taken a position some feelings and emotions will arise : joy, sadness, cupidity, fear and illogical behaviors.

Trading is a business and a business is best done without emotions.

On financial markets, retail traders are facing professional and experienced traders managing millions of assets. A retail trader must act like a professional : trade each day to accumulate experience and manage his funds like it was several millions of Euros or US Dollars.

Greed

Greed is part of every human and its effects are well described in J.R.R Tolkien's Lord Of The Rings.

Gollum was a simple fisherman until he finds Sauron's ring. This evil ring developed Gollum's greed, transforming him in a ugly and mad creature. Gollum alternates states of good and evil as his greed for his ring rises. At the end, Gollum prefer to die with his ring instead of losing it into lava.

Do you see the sameness with trading?

When you are trading you are the little Gollum facing the ring that binds us all : the Foreign Exchange market.

All you see is that all these market moves are opportunities. Opportunities to win money, a lot of money. All that money in front of you. You will try to get all that money by taking positions into the market. More and more positions, positions more and more leveraged. even when market conditions for nice profits are not there, even by averaging your losing positions, even when you are near of a margin call....

Instead of protecting your capital you'll prefer to follow it into lava. Then you'll wake and think : what have i done?!

That's why i have written this article of trading psychology because i lost money (approximately 10k€) for being greedy. That's not a slick advice because it comes from my personal experience (and lightweighted bank account...).

Advices to decrease your greed level :

- Do sports. Run. Swim.

- Keep social contact. Meet persons. Have a work in a company.

- Have a profit goal for the day. When the goal is hit, stop trading. After sun comes the rain..... Trading is tiring. If you are tired, greed will increase. And with greed, analysis mistakes and losses will arise.

Fear

As you're hitting losses fear will replace greed. With fear you will :

- Hesitate to open a position when there are signals to do. You will wait for... something... and then you will decide to finally open one... but too late. And hit another loss instead of a profit.

- Take your profits faster instead of let them running.

- Let your losses running instead of cutting them fastly.

Advices to decrease your fear level :

- Stop trading for a while. Do other activities not related to money like sports, gardening, etc...

- You must keep on trading because it's your income? Reduce your risk by lowering position sizes. 

Conclusion

You will earn money the day you will trade without emotions. This day, trading will be boring. But you will earn money for sure.

In a extreme manner that day :

- You won't have no joy or pleasure for making profits, even huge ones. Greed is gone.

- You will be happy for taking your losses. Why being happy by loosing money? Have you ever seen someone being happy and feared at the same time? No. Fear is gone.