Why is understanding trading psychology important??
Good trading is mostly about being your emotional best. Emotions or psychology are usually what separates the poor and average traders from the best. When you get the psychology right, you achieve trading maturity, which makes the biggest impact on your trading success.
Humans are emotional beings and usually it’s the emotions that fail them.
Have you ever been stuck choosing between reading a book and binge-watching an interesting web series? usually, binge-watching wins because that’s easy, more comforting, and of course, interesting. Even though hooking on to the TV does not add much value, we fail at this choice over and over.
How you behave in the above situation has less bearing on your life, but, if you carry the trait to trading and choose what’s easy and shun what’s painful, you would most likely be out of the ring sooner or later. That’s why training the mind to do the hard thing is the key to trading.
Though it’s applicable in all the professions, you have to be more careful about psychology in relation to trading, because trading can send you to the poor house..
Strategies and systems are no secret, there are thousands of books, a zillion Youtube channels, newsletters, and many courses that can help you learn about strategies and systems. That’s the part that comes easy if you are smart enough.
However, no matter how good the strategy is, if you don’t have the emotional edge to respond appropriately to market situations, you will not go very far in trading.
As a trader, you must recognize all the emotional pitfalls that traders face, and be ready to deal with them when they arise while trading. When you do this a lot many times, your reactions to such situations become unemotional and you achieve the zen state required for trading.
Types of emotions
Traders generally need to master two major emotions to be successful in trading - Greed, and Fear