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How to become a better trader By understanding psychology

Razvan Mihai

Analyst

Everyone is talking about trading psychology, but few have managed to explain what is messing with the trader’s mind and make him loose money. In this article I will try to make you understand some of these reasons and their importance in trading psychology.

It is already known the fact that it is very important to be balanced, to be disciplined and have a good emotional management to become a successful trader. It is not enough to have a trading strategy that offers you a good probability because your emotions will ruin the results in the end. I am telling you this not only from my experience, but also from the experience of those that I have coached.

Managing emotions, it is not something that someone can teach you, but rather it is something you can learn. The intensity of an emotion differs from a person to another; the trigger of a certain emotion is usually different from a person to another, so it is very difficult to teach a trader to keep a correct path and constrain his emotions.

The human brain is a huge, complex and evolved computer, the best known to man. But for many it works at its natural level, which is not very high comparing to its full potential. As any other muscle the brain evolves if it is trained and fed with information and experience. Training it will help one to take better choices, constrain emotions, control his/her actions.

What does this mean for a trader? Every time a trader is reading a book, news or opinions is feeding its brain with information about the market. By trading heavily on demo accounts and real accounts will feed the brain with experience and this will be shown in the trading actions made. In time they will have a higher probability of success.

These actions are afterwards ruined by the negative emotions which appears after placing a trade with real money. Are you wondering, why? Think of what impact has money on your brain and you will get to your answer sooner or later.

Our brain works best with images. If we look at a juicy lemon that it is cut in front of us, then for many of us the brain will send a signal and we will crave for that lemon. When trading, the novice traders are sending an image to the brain with: lot of money when winning, so greed appears because the brain sends us the feeling that from where those came, some more might come; losing money, giving them away is the image the brain gets when traders see that the position is negative. When these appear, we tend to take another action which usually is opposing the first one and that is why big losses or bad exists appear.

Don’t forget! It was proven that the decision one takes in the first three seconds it is usually the best. That happens because the brain uses the information he already has and the experience to take that decision. When other information is added like images with gaining/losing money than the perception is changed and usually that gets to negative interpretation of the reality which triggers negative sentiments and finally bad actions.

Make yourself a trading experience and stop acting driven by emotions! 

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