As per my previous blog, it is very clear that trading psychology is a very real thing. And to be able to attain and maintain a sustainable and long-term career as a trader, it is highly important to cultivate a right trader’s mindset and maintain it at all times.
And if I have to be brutally honest, this takes a lot of effort.
In this post, I will be sharing some ways to help you in cultivating a right mindset to trade.
Let’s accept that we are humans.
As humans, we are innate with emotions such as joy, trust, fear, sadness, surprise, disgust, anger, greed, etc. and this is what makes us human, so expecting us to perform like machines is not justifiable. So, making mistakes is possible and in trading most mistakes are made because of imbalance in our emotions, so let’s truly accept this and understand the importance of our emotions and keep them in check while trading.
Trading is indeed like any other business. Like, every decision in business is so important that it could change the path of the business for good or bad. Same way every decision taken in trading is equally important, so don’t take any trade lightly, as every trade matter and even more the way how we take the trade. So, let’s not jump into any trade without a plan, knowing an entry price and exit price even before placing a trade is crucial. Like every successful business has a proper plan every successful trader also plans his/her trades before punching in the orders.
Accept that the markets are random.
No trade is 100% a sure shot trade. Keep in mind at any point of time, markets could go against us and not reach our targets. No matter how high the probability of our strategy is, it cannot be completely accurate, so we should always be prepared for the worst.
We must truly accept this and approach trading as a system where we know when to get out if the market is not moving towards our direction.
Have a broader perspective.
We should not trade with the perspective of making money instantly, rather we should wait for the right setup or signal to trade. As, there are so many opportunities in the market (stocks, commodities or currency pairs), we should avoid overtrading. There is no necessity to think that we need to make all the money in the present trade itself, rather we should focus on quality trades where there is proper risk and money management, which will help us to improve the performance of our present as well as following trades.
Image source: https://www.nps.org.au/cpd/activities/opioids
Knowing this, will help us remain calm and composed, even when the market hits our stop loss. So, let’s see trading with the perspective of making money over a longer period of time by being consistent at every trading cycle and generate wealth through compounding.
Stop loss is a must.
No matter what, we need to have a stop loss in every trade. Stop loss is a market order that sets a boundary for our risk. As we know markets are random, any trade could go against us at any point of time. And to have a limit for money that we are willing to risk, stop loss is a key.
Right way of trading is not gambling, it is a study of probabilities, since trading is all about probabilities, we need to safeguard our money with a stop loss. It helps us to have a definitive amount of loss which is very important and helps us to ensure that there is no change in plan that is prepared before taking a trade.Knowing where to keep the stop loss is crucial which can be learnt from technical analysis and hexaurum provides a systematic approach through online video course. Another important thing to keep in mind is that we shouldn’t risk more than 2% in any trade and thereby keeping the stop loss with accordance to 2% risk will help us to have a right mindset to take the next trade.
“Boiled down to its core
the truth is always a simple
and solid thing”
– by david simon
And the simple truth of trading psychology is that, there is no magical spell or a secret to master it, we need to be disciplined at following our course of plan and stick to it with the basic rules of trading. It involves having a proper strategy, which should be followed with confidence and have controlled risk at every point of time.