Helpful Information, Articles, Tips and Tricks
for Day Traders.

The Psychology of Trading

There are many experts who teach the psychology of trading. Also, there have been many books written trying to teach the discipline needed for trading. Although the psychology is an important key for trading, you do not need to spend your money and your effort attending seminars to learn it.

This article intends to provide you a few simple psychological rules for trading that should greatly enhance your ability to trade effectively

Think about your losses as a cost of doing business

You have to accept your losses as a cost of doing business. Most successful traders have said that the most difficult thing about trading is accepting the losing trades.

Everyone has the desire to be correct all of the time. Novice traders usually think that their losing trades mean that they make some mistakes or something is not working. But for experience traders, losses are just a cost of doing business.

Every great traders has had losing trades. If you were to look at their performance results, you will see that they all have a large percentage of losing trades. Some of them use to lose money on more than half of their trade.

I guarantee you that you will have losing trades. So, learn to accept them and live with them. You will be spending a lot of time with them.

Use historical statistics

Before you trade, you have make sure that your trading strategy will eventually make profits for you. You should know its characteristics. In order to do this, you may have to use historical statistics.

Using historical statistics for your trading strategies, A.K.A. back-testing, gives you great peace of mind, particularly in accepting the losing trades.

By knowing the historical performance of a trading strategy, you may have psychological comfort during the tough periods of losing trades and drawdown. You will get the ideas about the trading strategy e.g. how many losing trades it has in a row and the largest losing trade the strategy has experienced.

Let the market and strategy determine the profits

Once you make sure that your selected trading strategy will make you profits, do not try to predict the market and do not try to second guess your strategy. You have to let the strategy be the strategy. Let it make money if it can. However if the market does not move in the manner that allow it to make money, it will not make money.

Put the responsibility of making money on the strategy and the market.