AuTrading Psychology

Trading psychology is one of the most underappreciated areas of study in the trading industry. Finding a reliable trading method might take most traders many days, months, or even years. Having a plan, though, is only half the battle. While it's critical for traders to have a method that works for them, it's just as critical to have a strategy for managing their money and to be aware of any psychological obstacles that could influence their trading decisions. Maintaining a steady equilibrium in all critical areas of trading is essential for success in this field.

What comes to mind initially when you experience a loss in a trading environment? Things such, "My system must be malfunctioning" or "I should never have made this trade, even though it warned me" would likely come out of your mouth. However, there are instances when we must delve a bit more to discern the exact source of our error, and subsequently rectify it appropriately.

Only around five percent of traders ever reach the pinnacle of their profession: consistently turning a profit in the foreign exchange market (and other markets as well). The intriguing part is that the gap between the other traders and this 5% is really small. The top 5% gain wisdom from their failures; they view them as opportunities to learn and improve. Since adolescents are aware that they may not have another opportunity of this kind, they internalize the idea that making a mistake gives them a chance to try again and improve. Ultimately, this seemingly insignificant distinction becomes THE difference.

Violating the rules of the trading market

We all know that the monetary result of a deal is directly related to any trading error. In reality, it is unrelated; errors occur when specific protocols are disregarded. In cases where your trading rules are disregarded. Consider the following examples:

In the first case, a trade signal is sent by the system.

1. I followed the signal and made a profit in my trade.

Profit was generated as a result of the trade.

Knowledge gained: It works to stick to the plan; the odds will improve if I do this regularly. A trader's and a system's self-assurance grows.

There was zero error.

2. Trade ends in loss after signal was taken.

Negative, financial loss was the result of the deal.

What we've learned is that losing certain trades is inevitable; it's a part of doing business. The same goes for our raw materials; we can't guarantee perfection every time. The trader is nevertheless pleased with himself for sticking to the method, even though he lost the trade. Trust in the trader grows.

There was zero error.

3. The signal was ignored, and the trade ended up being profitable.

The trade's outcome was neutral.

One thing I've learned is how frustrating it is for traders to enter into what turn out to be losing transactions while letting successful ones slip through their fingers. As a trader, you lose all confidence in yourself.

I should have taken a trade when the algorithm told me to.

4. A losing trade results from the signal not being taken.

The trade's outcome was neutral.

The trader will begin to believe, "hey, I'm better than my system" as a result of their experience. Since the trader's "feeling" is more sophisticated than the system, the trader will rationalize on every signal given by the system, even if the trader doesn't consciously think about it. The trader will now attempt to beat the system by using their best guesses. We can no longer have faith in the system because of this error. When a trader is confident, it might lead to arrogance.

I should have taken a trade when the algorithm told me to.

Alternately, the system may not indicate a deal.

One, there is zero trading.

Results of the deal: indifferent

Gained experience: Excellent self-control; we should only do trades when the odds are favorable, precisely when the algorithm indicates this. Have faith in one's trading abilities and the system as a whole.

Error committed: zero

2. It's a trade that ends up being profitable.

Profit was generated as a result of the trade.

Based on what I've seen, this is the worst trading error that can happen to a trader—both personally and professionally. You can begin to believe that you are already an expert and that there's no need for a system. You will now begin to trade according to your thoughts. There is zero trust in the system anymore. Overconfidence sets in when a trader believes in themselves too much.

The trade was executed without a signal from the system, which was a mistake.

3. A deal was executed, however it ended up being a losing trade.

The deal went south, and the capital was gone.

The trader will reconsider his approach based on the newfound knowledge. When the system doesn't indicate a trade, the trader will think twice about entering it the following time. The trader may think, "Alright, I should enter the market only when my system tells me to; only then will my chances of success be higher." Belief in the system grows.

A blunder was made when a deal was executed without a signal from the system.

You can see that making a mistake has zero bearing on the trade's final result. Even if a trader makes money as a result of their worst error, it could spell the beginning of the end for their career. Mistakes, as we have already said, can only include a trader breaking the rules.

All of these blunders had something to do with the indications provided by the system; however, the same holds true when exiting a trade. Even when following a trading strategy, you can make blunders. Examples include, but are not limited to, putting more capital at risk than was prudent in a particular trade.

First things first: have a trading plan. It will help you avoid most blunders. The system, which determines when we enter and exit the market, and the money management strategy, which specifies the amount we will risk on each trade, are only two of the many components of a trading plan. The second and foremost requirement is that we keep ourselves disciplined and adhere rigidly to our strategy. There were no psychological hurdles to overcome as we devised our strategy before any deal was executed. We can only say with certainty that the decisions made are in our best interests and will lead to better outcomes in the long term if we stick to our plan. We aren't risking our trading careers on random occurrences or trades that may have looked good at first but ended up ruining everything.

Strategies for overcoming setbacks

Managing errors effectively can be done in numerous ways. Whichever one is most convenient for us, we will recommend it.

Step one: Shift in perspective.

You may learn from every mistake you make. Every single one of them is worth considering. Instead of giving in to your natural inclination to feel frustrated, try to look at mistakes with a positive attitude. "Okay, I messed up. What happened?" is a better choice than ranting at everyone around you and acting out of disappointment. Describe it.

Step two: Figure out where the error occurred.

Put your best effort into identifying the nature of the error, defining it, and determining its cause. You can avoid repeating the same error by identifying its source. The answer is usually hiding in the most unexpected places. Consider a trader who refuses to adhere to the system. The trader's fear of losing could be the driving force behind this. Why, though, is that person scared? The trader may be struggling to follow all of the signals since they are utilizing a system that does not work for them. In this instance, the mistake's nature is not immediately apparent. You should make every effort to determine the true cause of the provided error.

Step three: Evaluate the fallout from the error.

Make a list of the positive and negative outcomes that could result from that specific error. When we learn from our mistakes and improve as traders as a result, we say that the consequences were good. Consider everything you can gain from this experience. What would happen if we made that error in the previous example? The problem is that you'll end up in trades you don't want to be in and out of trades you should be in because you won't follow the method. Your faith in the system will erode over time.

Next, you must act.

The last and most crucial stage is to take the right action. Changing your actions is the first step toward learning. The key is to become "this-mistake-proof" in everything that you do. Every setback becomes a stepping stone to greater success in our trading journey when we take action. Redefining the system would be the last step for the trader, to continue with the same scenario. The trader would tailor a system to their specific needs, making it easy for them to follow future alerts.

When you realize that a mistake has zero bearing on the result of a transaction, you'll be able to see past the obvious and learn from each and every one of your mistakes. While you work and learn from your mistakes, this will pave the way for your trading profession.

A lot of the time, the sluggish pace of success is due to the fact that people make the same mistakes over and over again, and they have to fight to go past those mistakes and fix themselves. Our trading and, more significantly, personal, futures are directly impacted by how we handle these challenges.



No way!

Location:

Share :