Tips and Tricks of Trading Psychology

Here, we will be compiling different “Tricks and Tips” in the field of Trading Psychology. Keep checking back for more ideas and feel free to submit your own suggestions.

Keep a Stopwatch handy.
If you are more prone to negative emotions in trading, it can be a good idea to keep a stopwatch by your desk and time how long it takes you to experience a given emotion when trading. Keep a notebook of how much time it takes you from the moment you feel the fear or the greed until the moment it passes. It may seem silly at first, but what you’ll learn that your emotions are not permanent and they always pass no matter how bad they may seem at the moment. In cataloging your experiences, you’ll likely find that it takes less time to experience each emotion and that you know that it will end, instead of being worried it will never end.

Keep an Emotions Notebook.
We know we’re supposed to keep a Trader’s Notebook or Trader’s Journal to catalog our trades and experiences, but sometimes it can be helpful to keep a specific notebook dedicated to your trading psychology experiences. If you’re more likely to experience emotion, it can be helpful to write it down and organize it, so that you can reference your experiences and gain insight from them. In essence, you’re turning your emotions into a positive source of information for the future. Write down what you’re feeling, what triggered the emotion, how long it lasted, and any additional observations.

Source : here

Controlling Greed

Greed is often more discussed in the literature of Trading Psychology because it’s an easier topic to discuss than fear. After all, we trade to make money, and it’s easy to let that impulse dominate us and get carried away, particularly if we are experiencing success. What’s so wrong with greed anyway?

Greed by itself or in moderation might not be so bad, but it’s when the greed emotion takes over and causes you to act either against your plan or your best interests that it becomes problematic.

Greed can cause us to do any number of the following ill-advised trading behaviors:

• Buying in after a long rally just because we think price will always go up
• Not looking at the risk in a trade, or identifying an acceptable stop-loss
• Ignoring the need for a stop-loss
• Taking on a larger position than normal
• Rapidly increasing our position size because we think we can’t fail

Mainly, the market has a way of making us feel humble by giving us a loss when we feel most confident. We feel most confident after a big win or a series of small wins which causes us to alter our normal trading methods and behave outside of our plan. When we feel most confident, we focus on how much the market (trading) can GIVE us instead of how much we can lose - in short, we discount the risk of the marketplace when we are experiencing excessive greed.

Source : here

Overcoming Fear

While some traders are more likely to fall victim to greed (”How much could I make?!”), others have experienced loss in the market to the point where all they can see is the fear and anxiety (”How much could I lose?” or “How much could the market take away from me?”).

Let’s look at some resources to help us cope with these fears.

I recommend beginning with Price Headley’s article “The Four Fears of Trading” which lists and explains each type of fear - it’s more than just being afraid to lose money. Headley lists the fears as the following:

1. Fear of Losing Money
2. Fear of Missing Out (on a Move)
3. Fear of Letting a Profit Turn into a Loss
4. Fear of Being Wrong (or not being right)

Furthermore, I compiled a page of helpful resources and articles on the Blogsite that lists additional resources from various authors.

When we’re in a trade that we expect to be right and make money, but the price begins moving against us, we quickly feel the fear or anxiety. We might have a stop-loss placed, but as price heads to that level, we may feel intense anxiety. Worse, if we don’t have a stop-loss, we may develop the “Deer in the Headlights” syndrome where we freeze up, unable to take action as price moves quickly against us and the loss increases.

However, fear goes beyond “Losing Money.” It can cause us to jump into a price move, ‘afraid’ that we’re missing out on the move. It can also cause us to exit a trade far too early (before it hits our profit target) under the “fear” of leaving money on the table (or specifically, “Letting a profit turn into a loss”). To overcome it, we’ll hit the exit button on a trade that is showing a small profit when if we had more confidence and executed our plan, we would have gained a larger profit.

When we feel the fear, we might take sudden steps to overcome it, whether that results in jumping out of, or into a trade. It’s critical not to let the fear lead to unhealthy behaviors, habits, or harmful coping mechanisms such as alcohol abuse.

Source : here