3. Tips to Improve Trading Psychology
These tips will help you significantly improve your mindset and safeguard yourself from being led by your emotions. Try them out!
Tip #1: Get in the Right Frame of Mind
Traders can definitely benefit from completing motivating exercises and pep talks on a daily basis. This doesn’t have to be overly complicated – simply reminding yourself that factors such as stock prices are not personal will do.
Another way that you can get into an excellent state of mind for trading is to give yourself more time. Rather than snoozing your alarm and then rushing to prepare before the trading day begins, you should try waking up a little earlier. This will give you the time you need to wake up fully before you begin your research. Starting the day with meditation and exercise can help you approach work with a more relaxed and objective mentality.
Tip #2: Build Up Your Knowledge
One of the most effective ways to improve your trading emotions is to increase your knowledge base. By having a wealth of resources about how trading works, you will be able to make better planned and spontaneous decisions.
Your increased knowledge will allow you to handle any surprises that the market throws your way, so you can react calmly. Strive to learn something new every day – this will add up over time, giving you the ability to make more informed trading decisions.
Tip #3: Imagine Winning & Losing
In order to really check your emotions, you should try this mental exercise: visualize yourself being victorious in a trade. Feels good, right? Do you want to make that feeling a reality? Imagining victory can be a motivating experience, thus prompting you to create an action plan to achieve success.
However, an important part of this exercise is to visualize defeat. Not just a defeat, but the absolute worst-case scenario. This preventative exercise will help you determine proactive steps you can take to avoid such catastrophic outcomes.
Tip #4: Always Remember That You’re Trading With Real Money
Some traders keep cash near their work station – for two main reasons. The first is to motivate themselves towards their ultimate goal: to earn cash. The second reason is to remind themselves what is at stake.
You should always remember while trading that you are dealing with real money, rather than just numbers on a screen. You are risking actual money in the hopes of turning a profit. So, in order to protect your cash, you should be responsible. For instance, complete sufficient research, create a trading plan, and approach trades in an unbiased manner.
Tip #5: Observe the Habits of Successful Traders
You shouldn’t try to copy a successful trader’s habits exactly – you’ll always be a step behind them, so you’ll never have an edge. However, observing successful traders and finding out what positive characteristics they have in common can be a great way to improve your trading outlook. Piece together facets that you admire about several successful traders – this will help you form your own unique trading style.
Tip #6: Practice, Practice, Practice
Almost nobody is great at trading from the very beginning. It takes practice to be able to develop the skills you need for success. Study, hard work, and time will help you become a stronger trader. Practice doesn’t always make perfect, but it will be the best way for you to gain mental strength and to improve your trading psychology.
Tip #7: Monitor Your Progress
Reflect upon your progress as a trader by monitoring, observing, and documenting your actions and their subsequent outcomes. A great way to do this is to write in a trading journal on a daily basis. Whether you are doing it digitally or on physical paper, be sure to keep records of all of your actions. Pay close attention to your successes and see if there is a trend.
Conversely, you should also keep track of losses and see if any of your actions are wasting your time and money. By monitoring your progress, you will gain greater mental clarity with every trade.
Tip #8: Stick With Your Trading Plan
While we’ve already mentioned that it’s a great idea to create a trading plan, there’s another related tip: stick to it! A trading plan is like a roadmap you can use to determine the size of your position, your entry and exit, your risk to reward ratio, and other factors regarding an upcoming trade.
But what’s the point of planning if you are just going to disregard it? A plan can help you mentally prepare for any market surprises. When things shift, refer to your plan – then, when a share’s price reaches your predetermined price points, you know exactly which action to take. Trading plans take the guesswork out of actions, thus providing you with mental security.
Tip #9: Follow Stock Market Trends
Up until this point, we have emphasized the point of making unbiased trades and sticking to a plan. However, it is also important to know when to go with the flow. You can’t simply make the market bend to fit your needs. It has cycles that you need to work around, not vice versa.
Tip #10: Use Stop Orders
By putting stops in place during a trade, you can gain ease of mind. When you place a stop order, you are specifying that you will sell or buy a stock if it reaches a specific price. Once the stop price is reached, the order is executed.
This can help you make a promise to yourself about the point where you’ll exit a trade – and since it is automated, you’ll actually follow through. This is opposed to a mental stop – in which you have to have willpower to stick to your promise.
Tip #11: Be Disciplined
Above all else, you need to have the discipline to assess your emotions and realize when they are leading you astray. If you find yourself being led by intuition or another abstract concept, take the time you need to rebalance yourself. Come back to these tips and read them again, until you become more comfortable with taking an objective approach to the market.