10. Apr, 2012 1 Comment

While day trading has become immensely popular in recent times, the truth is that it can be an emotionally difficult task for those looking to do this full-time. Day trading stocks, futures, forex, and other securities can be highly profitable and result in great losses due to their lucrative nature. If you want to be a successful day trader, it’s not necessary that you know everything about day trading. You may have all the strategies and technical tools to help you achieve maximum profits; the true success of any day trader relies on the psychological and emotional strength within you.

Emotions That Affect Your Trading

There are two types of emotions that day traders face on a consistent basis, which are fear and greed. Even though these two emotions are known to drive the market; they can also cause significant losses. The fear of missing out on profits arises when the day trader is frustrated when he or she misses out on trades that were highly profitable. This frustration leads to traders overtrading, so that they don’t miss moves and lose out on profits. As a result, traders lose their discipline and magnify their greed to maximum profits. The emotion of greed leads to more losing trades and paralyzes a trader as he or she is overwhelmed by fear. The emotions of fear and greed can demoralize a trader and lead them to give up trading altogether.

Often times, I hear the mantra among more experienced traders (20+) that your screens are you. What this really means is that whatever personal issues and psychological challenges you have, it will show up in your trading. If you have issues with self-sabotage or other issues, you will find a way to act them out in your trading.

Importance of Trading Psychology

Trading psychology involves studying the emotions that affect how decisions are made during trading and then learning how to control these emotions. It is important to understand emotions such as fear and greed because they are destructive, which can lead to undesired consequences such as over-trading. Trading psychology will teach day traders that no trader should begin trading with unrealistic expectations from the trades, as this normally arises from greed. Some trader’s trade just to trade, which is caused when the trader is bored in situations where the market is quiet and the trader thinks that any trade is better than no trade.

Fear is another emotion that should be understood, as it can affect your performance during trading. Many traders face fear during their trades due to two reasons. The first is fear of losing money; which tends to cause the trader to exit or leave the trade too soon or to ignore a profitable trade. Whereas, the fear of missing out causes day traders to enter markets that are premature causing profitable markets to turn around and cause loss.

Overcoming Your Emotions

No one can control or suppress their emotions in any situation, especially during day trading. All emotions that drive the market should be understood, so that you can make rational decisions. Knowing what you feel in every situation, will give you a risk management edge while you trade. It is also important that while you day trade, you keep your strategies and plans in front of you, as they will guide you whenever you feel your emotions are taking control of what you should do.

If you learn trading psychology properly, you will be in a better position to make profitable decisions. All the trades based on fear of acting out or missing out can be avoided if you take time out to analyze the reasons why you had taken certain steps or decisions during your trades in the past, so that you know when and when not to trade in the future. To succeed in trading and life one must first conquer themselves.

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