The psychological aspect of trading is extremely important to understand, and the reason for that is fairly simple: A trader is often darting in and out of stocks on short notice, and is required to make quick decisions. Emotions simply can't get in the way.

You should periodically review and assess your performance. This means not only should you review their returns and their individual positions, but also how you prepared for a trading session, how abreast are you with the market information.

Emotions Can Rule the Trade

Emotions could be the trader's worst enemies; they often lead to misjudgement and loss of investment.

Greed

There's an old saying on Wall Street that "pigs get slaughtered." This greed in investors causes them to chase on the winning positions for too long, trying to get every last tick. This attribute is damaging to your trade plans as you are always running the risk of getting blown out of a position.

Greed is not easy to beat because we always want to do better and try to achieve a little more. A trader should recognize this instinct and create trade plans based upon rational decisions.

Fear

When your trades are in red or bad news comes about a certain stock or the general market, it's not unusual for the trader to get scared.

Sometimes we hold on to trades that we know are no good in fear of closing them and making the loss "real". It's ok to have a loss and walk away.

Sitting on bad trades just makes your losses larger and offsets any winning trading that you might be doing otherwise. If the trade isn't working out as expected, close it, and move on.

Paralysis by Analysis

Paralysis by analysis is an interesting phenomenon in which traders get so caught up in analysing everything about a potential investment, they never actually pull the trigger on the trade. In this case, what often happens is that the investor will constantly question all of the little details found in the analysis in an attempt to perfectly analyse a situation.

This is a truly unachievable task, which can prevent a trader both from making monetary gains and from making experiential gains by getting into the trade.

We are only human and, as such, perfection may not exist in trading. However, profitable trading can be achieved when you learn to manage our emotions.

Trading Discipline

To get your heads in the right place before you feel the emotional or psychological crunch, you can look at creating trading rules ahead of time. YOU can establish limits where you lay out guidelines based on your Return on Investment ratio and when will you exit a trade - regardless of emotions.

After a major loss, it's important that you take some time off. Avoid the need to immediately jump back in to get your profits back, it will surely come once implementing a distinctive working methods.

It is better to come back after you feel well rested, calm, and clear headed. Beating your emotions is the most difficult thing. If you are smart and recognize that you are being emotional, you can avoid compounding your mistake.

Decisiveness

Deciding when to enter and exit trades is one of the most basic functions of a day trader, and it is important that these decisions are made as efficiently as possible. Being decisive is vital to successful day trading, otherwise you will only sit and watch trades that you should have actually taken.

Being decisive does not mean being rash, and taking trades that you are not sure about, but it does mean acting promptly when a trade does come along. A common pitfall that many beginning day traders come across is seeing a trade occurring, but hesitating and waiting for the trade to start moving into profit before entering (waiting for confirmation that the trade is going to be a winning trade before they enter it).

This always results in an entry price that is not as good as it would have been with a prompt entry, and can turn a winning trade into a losing trade.

Calmness

Remaining calm during trading is one of the most important personality traits for a day trader, but it is also one of the most difficult to obtain and practice. As humans, the natural reactions to a winning trade are excitement and joy, and the natural reactions to a losing trade are panic and sadness, but day traders need to control these emotions, otherwise they will adversely affect their trading decisions (particularly the negative emotions).

For example, the panic that occurs after a losing trade might make you take a new trade almost immediately in an attempt to make the money back, even though there was no trade according to your trading system.

Trading Anxiety

Trading anxiety can be a problem for traders that have suffered from serious losses. Anxiety can cause a loss of confidence, fear of mistakes, and take away your ability to be objective

If you find yourself feeling sick and upset over your trading account, it's likely that your risk management is not tight enough. To overcome this, you have to make a plan.

Sit down and outline what you think you did that put you in the position that you are in. Once you have identified the mistake, make a trading plan to correct the mistake and make a note of how you will avoid this happening again in the future. No one is perfect, everyone makes mistakes.

The most important thing is that you learn from them. There are no perfect traders out there. Even professional traders take a heavy loss from time to time.

Trading without knowledge

Whilst very beneficial in many aspects of our lives over optimism can however be very dangerous in the trading environment. Over optimism and guessing is the result of two main reasons, the illusion of control and the self-attribution bias.

What prevalent amongst new traders is when initial trading success without a plan leads to more trading of a similar fashion and overconfidence in trading.

This problem is common especially when traders attribute random outcomes to skill, an issue known as ‘random reinforcement’. It is important not to confuse randomness with positive expectancy and recognize that working with technical indicators combined with the market sentiment and the fundamentals will give you the complete package to success.

In the process acknowledging that successful trading needs attention and a work plan. Just few winning trades is not the same as long term statistical validation.

Revenge Trading - What is it?

Revenge trading is when you get into an emotional tussle with the market and become overly aggressive with trading. You've suffered some losses and you are understandably upset about it, so you set out to get revenge on Mr. Market, The one who took your money away.

As hard as it can be to fight the emotional response, traders must refrain from revenge trading. Emotions are trader's enemy. The typical revenge trade will be double or triple the size of the previous losing trade.

The trader will reason this out as "I can make back what I lost and add a gain to it, and quickly". The only problem with this approach is, if the trader's hasty decision turns out to be wrong, they are going to add a double sized loss to what they already lost. This turns revenge trading into a never ending pit of bigger and bigger trades until a margin call occurs.

Although it's not a glamorous choice, it makes much more sense to accept defeat for the moment and admit your mistake. It's always slower climbing back up out of the hole than it is to fall down into it, but the long term rewards are much better.

Trading Plan

You should try to learn about your area of interest as much as possible. For example, if you are interested in currencies, it makes sense for you to become knowledgeable about currencies. Start by formulating a plan to educate yourself.

That means following our educational suite, studying and understanding charts, speaking with your account managers, reading the news and view the videos we publish or doing other background work.

You should periodically review and assess your performance. This means not only should you review their returns and their individual positions, but also how you prepared for a trading session, how abreast are you with the market information.