Trader Psychology – My “Not So” Expert Opinion.

*How one can manage their psychology when trading the financial markets*

Welcome back to the blog, I hope you are all well. In this blog post I am going to talk about something a bit different to normal. The main content I post on this site is usually technical/fundamental analysis and education posts designed to help you find good trade positions and how to manage them effectively. What I don’t do is teach you how to manage your mind.

There is a good reason for this – I am not an expert psychologist! I don’t claim to be and that is very important because there is nothing worse than seeing someone with little experience preaching “gospel” about a subject that they haven’t mastered themselves.

What I will do in this blog post is share with you how I have learnt to control my psychology when trading the financial markets and my hints & tips for new traders. This is not expert psychologist level information, this is my real world experience.

What is the role of psychology in trading the financial markets?

Your psychology is responsible for how YOU execute your trading plan and stick to your trading strategies. If your trading strategy is the foundations of your building then your psychology is the contractor installing them. You could buy the strongest concrete in the world but if the contractor is an idiot then your building will collapse.

Your psychology is there watching you pressing that buy or sell button when you are ready to enter a trade. If your strategy is saying to buy but you don’t then your psychology is holding you back with fear. Much like if you are holding multiple profitable positions and your strategy advises you take profits but you do not because you want to make more money, then your psychology is holding you back with greed.

Fear and greed are just two of the many emotions that financial market traders will experience on a daily basis and they can either make you or break you.

Unless your trading is 100% systematic and mechanical then psychology will have a big part to play in your success or failure as a trader.

My top tips for managing your psychology.

  • Be realistic – You have to manage your expectations and realise that your performance might be better than you first thought. Pushing your self too hard to produce huge returns every month is a sure fire way to mentally imploding.

Measure your performance against a proper benchmark of the industry. If you are equal or beating the benchmark then you are doing great! Yes, there is always room for improvement but do not push yourself too hard. Trading the financial markets is about consistent long term returns.

The material possessions of other traders on social media are NOT a performance benchmark!

  • Think long term – As mentioned above, successfully trading the financial markets is a long term game. If you are having a bad day, week or month just remember that you are looking at 1 day out of thousands, or 1 week/month out of hundreds more to come. Don’t worry yourself, take a step back and see the bigger picture.
  • Take time off – Freedom is a perk of the job, take some time off and go and enjoy yourself. Not only is it good to give the brain a rest but you will also find that you come back to the markets with a fresh opinion cleared of any unhealthy bias’ you may have had.

So often I see “traders” online talking about the markets 24/7 and looking at charts all day everyday. That is not healthy and it is a sure fire way of melting your brain. You will notice that my social media rarely features charts and trading because it doesn’t need to be your whole life.

Most people on social media that only share trading content are not financial market traders, they are marketers trying to sell you something.

  • Avoid opinions – I do not follow any financial traders on social media who post excessive trading content because it is not what I am interested in. I have my own strategies, my own analysis and I do not need or want their opinions creeping in to my mind and causing doubt. I am also selective about trading “chat rooms”. For new traders, social media and trading chat rooms will ruin you, trust me. You will begin to doubt your own analysis, stray from your strategies and even enter trade positions you would not normally do.

However, there is a fine line between believing in yourself and a dangerous ego. I will talk more about this later in this blog post.

If you are struggling (mentally) dealing with your current trading then it could benefit you to take a step back and reduce your trading. Naturally, a scalper/day trader will see much greater volatility and swings in their account balance compared to a longer term swing position trader or investor. This will make controlling your psychology harder. The increased frequency of trading will also likely put an extra strain on your “psychology” so if you are finding it hard to keep dedicated to your strategy and trade management then slow things down, take a step back and trade the bigger picture.

If you follow me on Instagram then you will know I am a big fan of red wine. Although I don’t advocate getting drunk when trading the financial markets, I do love to unwind and clear my mind with a nice bottle of vino!

If you want to know what happens when you trade whilst under the influence of alcohol then check out the video below…

Further thoughts.

Confidence is key to controlling your psychology and sticking to your trading strategies. If you are confident and believe in your strategy then you will find yourself ignoring fear and greed and executing your trades with absolute belief that, win or lose, you are on the right track to long term profitability.

You will only get confidence in your trading abilities from actually trading the financial markets, there is no replacement for real experience.

Back-testing also helps because if you know that the numbers show your strategy is profitable in the long term then you will more likely stick to it through the wins and losses and avoid psychologically induced mistakes. Back-testing can also tell you the statistical likely hood of the maximum number of consecutive “losses” you might incur whilst maintaining long term profitability. This will certainly help you remain positive through times of drawdown and losses of trading capital.

Just remember that there is a fine line between confidence and arrogance. Keep that ego in check. There is nothing wrong with believing in yourself and your abilities but even the best traders can see returns and profitability diminish. Make sure your ego isn’t controlling your psychology and making you divert away from your trading strategy and risk management rules.

The chart below is very interesting and shows exactly how one should manage confidence vs experience.

New traders will often see a few winning trades and their confidence will fly through the roof (beginning of the chart). However as you can see, true confidence is earnt through experience and only then may you call yourself an expert.

Egotistical traders who could be far along the experience scale can quite easily start to move backwards on the scale above as confidence levels exceed experience. The battle to maintain a solid state of mind is continuous.

Check yourself before you wreck yourself.

Further reading.

A lot of what I have learnt about my own psychology when trading has been learnt from trading the markets and realising my mistakes down the line. There is no replacement for getting out there and “doing it” and experiencing the world of financial markets trading.

However, I have read many books over the past years and the two listed below are the ones I would recommend for learning more about your psychology and how the brain works so you can control it to your best abilities. It is seriously interesting stuff in my opinions.

You can buy them here:

Thinking Fast and Slow by Daniel Kahneman

Trading In The Zone by Mark Douglas

If you are struggling with psychology when trading and this is effecting your returns then feel free to reach out to me via this blog or through my Instagram which is @charlieab94. I will be more than happy to talk to you and see if we can get you through any tough periods.

Useful Links:

All my technical analysis is done using the TradingView platform. You can get access via the link below.

My preferred broker of choice is IC Markets. Low spreads and trading costs really help long term profitability. A link to their site is below.

FTMO Trader Funding Programme.

Thanks for reading and please don’t forget to LIKE, SHARE and FOLLOW my blog to stay up to date with the latest market analysis and trading education posts.

DISCLAIMER: None of the information posted on this site is to be considered investment/financial advice. Trading is high risk and you should only trade with money you can afford to lose.

%d bloggers like this:
search previous next tag category expand menu location phone mail time cart zoom edit close