The Importance of Trading Psychology in Trading Systems
June 30th, 2010
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We always imagine successful traders as people who are living a good life while on the side are crunching numbers and making last minute decisions in the market they are involved. While the market may have evolved in the processes or ways on how to conduct the trading, the only thing constant is that the trading psychology will always remain an important factor to a trader’s success.
Many traders have experienced the joys of earning big time because of the trading decisions they made. However, the numbers are bigger when it comes to those traders who have lost. And it’s even sadder if the money lost was their own savings. As you might have probably guessed, these are the first time and inexperienced traders. Often the culprit is, again the so-called trading psychology.
But what is this trading psychology and why does it have a great impact on the success of a trader? That even if he has the best trading systems under his belt, it may still not be enough to net big earnings for himself. We can define this trading phenomenon as the perception change experienced by a trader while working within his market. Usually the money that a trader uses in his dealings are his own and therefore the gain or loss of it will always have a major impact on him. You can just imagine all the emotions that a trader feels whenever he needs to make a big decision in his trading.
While this often has a greater effect on the first time traders, nevertheless it also affects even the experienced traders. Of course, whenever the amount involved is high, it does not matter whether you are a rookie or a veteran trader because you will certainly feel mixed emotions whenever you have to make a big decision. But in the end, that although the market may constantly change even every minute, it is still the combined strategies and the wise decisions that can bring success to a trader.
One example where we can see the effect of trading psychology is, again, on a newbie trader when he makes his first trade. The indecision and the uncertainties he will feel during the initial trade is aggravated by the fact that he is using his own savings to fund his trading. This, sadly to say, might often lead to mistakes and lost profit opportunities.
Even the seasoned traders can make errors in their decisions due to this trading psychology. Sometimes when they are in a certain market and the numbers are not in their favor, they are often not sure whether they should conduct a trade exit or just stay put and wait till the numbers go up. Well at least just enough to give him a decent profit for what he has originally invested. However, if he has been in that market for a long time, he might feel the need or the desire to stay longer and try his luck further, hoping that everything will turn out fine.
As a parting note, trading psychology is a fact that which all traders experience. Now how to handle your emotions, your thoughts and ideas can make the big difference in any trading decision that you will make.
Entry Filed under: Business