Greetings, my friends!
You have already learned how to create and test your own trading strategy, opened a brokerage account, and started trading. Now it is time to strike the balance and study the term the trading psychology.
I suggest sharing our first wins and losses in the comments since this lesson won’t be too long. I hope the information we are about to discuss will be helpful for any reader.
I believe you should take a moment to tick off the items on a small checklist:
- You have a list of the trading rules at your monitor.
- The list contains the following information:
- The rules of entering a trade.
- The rules of setting the Stop Loss orders and the Take Profit orders.
- The rules of closing a trade.
- The value you intend to trade.
- You start and finish trading at the same time every day.
- You are keeping a trading journal and write down your emotional state at the start of each trade.
- You have picked one or several trading instruments.
- Your workplace and trading platform are well-organized and comfortable for you.
- Nothing and nobody disturbs you while you are working.
If you have ticked off each item on the list, then congratulations! ]You are moving in the right way. If you have missed some points, it’s all right, you can easily remedy the situation.
In the early stages, I suggest you pay attention to following your own trading strategy in the first place. Theoretically, the trader’s focus follows this path during development:
- Creating and testing the strategy.
- Following the strategy.
- Tuning and scaling.
The First Results
Psychologists are disputing whether a quick, easy win or heavy, major loss causes a more negative psychological effect. This section will be devoted to two feelings that any trader will eventually experience. I am talking about euphoria and despair.
Euphoria, or dizziness with success, comes at the moment you make a good profit taking on the market. At that moment, you may get your own sense of worth or a sense of superiority over the market.
In my opinion, euphoria destroys most traders’ deposits. A sudden big win makes the trader significantly increase the trading volume. The feeling of owning the Holy Grail of the market, the very strategy that is able to squeeze the market dry, plays havoc in the budding trader’s mind.
When I first earned a large profit on the forex market, I…bought a notebook. It was a coercive ploy because I truly needed to buy a new computer and that was a necessary investment. It was 12 years ago and I realize now that it was the best decision I could make at that moment.
If you have read my articles and you trust my opinion, please, let me give you some advice.
When you get the first significant profit, for example, if you double or even triple your money, do not increase your trading volume. The best thing you can do is to withdraw the bulk of the profit and spend it.
You can buy something for yourself or your family. You can take your family on vacation or just go out into nature. It does not matter how big your profit is. Some people do not consider $100 good money, but, for some, it is half of their monthly wage.
Psychologically it is very important to get the money out and spend it to feel the result of your work. When you keep your money in your trading account, it is, technically, not yours, you cannot feel or touch it and you cannot spend it immediately. Many budding traders leave their work in the financial markets since they never withdraw the profit from the trading account but they were constantly reinvesting it instead. When you get even a small profit on your hands, you will feel completely different.
What Should You Do If You Fail?
Time of despair and dismay comes now and then to any trader, businessman, writer, artist or any other person who is earning money and jeopardizing something.
It is extremely important not to give up at such moments. But you know that talk is cheap.
You can read hundreds of stories in which the high achievers fell and got up, got poor, and then got rich again. However, when you are in such situations, it feels like the world is falling apart.
Practically, we have only two kinds of motivation: intrinsic motivation and extrinsic motivation. When we run out of our own energy, we try to get it from music, video, or literature in order give ourselves the strength to start over again.
At any rate, every person will follow his or her own way of restoring motivation. I will only describe what I do to recover after a great loss or a mistake. Here is my list:
- I turn off the trading platform. If I feel I cannot resist the lure, I delete the app from the smartphone.
- I stay away from the computer for at least one day.
- The mind always follows the body. That’s why I engage in some athletic activity immediately. I may go to the gym, swimming pool, or just for a run.
- When I feel well and ready to get back to trading, I open a new trading account.
- I make a new analysis of the trading strategy in test mode and rewrite my list of rules. The new set of the rules may be completely the same as the previous one, but I feel I need to write it once again. It makes me feel more confident about my strategy.
I trade the minimum trading volume for at least one day. I usually return to my typical trading volume after two or three trades.
Why Is It All So Difficult?
Well, that’s easy. I have figured out that success in trading depends on two simple things: a profitable strategy and adequate performance.
I can evaluate earning power of a strategy only by the tests and try it only during the daily work. Therefore, I should mainly focus on adequate performance.
I understand that short-term success is not my thing. My overall goal is to develop the right habits so that I act in the right way automatically.
This is the approach I recommend my readers to follow. I wish you good luck and patience in your trading. I will be happy to discuss motivation in the comments to this lesson or by email. See you on the next final lesson of my course!