Psychology

 

When people get into this industry, they are not aware of how much of a mind game it is. Trading is 80% psychological and 20% skill. Psychology is the scientific study of the human mind, and it's functions, especially those affecting behavior in a given context. With that being said, the traders who struggle to overcome the battle with the brain in trading seem to struggle a lot more than those that trade without emotion and trade based on what they see. If you're in a constant battle with your brain, you will miss opportunities you should have taken and make trades you know you shouldn't have. You will move stop losses, you will open more positions when in a draw down, and you will go against everything your trading plan says to do. Below I have attached 14 stages a trader goes through with their emotions. 

Optimism – A positive outlook encourages you about the future, leading you to buy a currency pair.

Excitement – Having seen some of your analysis work, you begin considering what your success in the market could allow you to accomplish in the outer world.

Thrill – At this point you as traders cannot believe your success and begin to infatuate with how "smart and skilled" you are.

Euphoria – This marks the point of maximum financial risk. Having seen every decision result in quick, easy profits, you begin to ignore risk and expect every trade to become profitable. You throw your trading plan out the window and start to take shortcuts.

Anxiety – For the first time, the market moves against you. Having never stared at unrealized losses, you tell yourselves you are swing traders and that all your ideas will eventually work. Your infatuation begins to turn into resentment, but a part of you reassures yourself the trade is still perfect.

Denial – When markets have not rebounded, yet you do not know how to respond, so you begin denying either that you made poor choices or that things will not improve shortly. 

Fear – Reality kicks in and the market has become confusing. You believe the trade you are in will never move in your favor.

Desperation – Not knowing how to act, you grasp at any idea that will allow you to get back to breakeven. At this point, some of you may open the second position because "the trade is still good." You marry the trade and decide the second trade will give you profit from the draw down the first one is in when they both go your way.

Panic – Having exhausted all ideas you are at a loss with what to do next.

Capitulation – Deciding your trade will never go in your favor again you close all of your positions to avoid any greater loss.

Despondency – After exiting the markets, you do not want trade ever again. This often marks the moment of greatest financial opportunity.

Depression – Not knowing how you could be so naive you are left trying to understand your actions and what went wrong.

Hope – Eventually you return to the realization that markets move in cycles, and you begin looking for the next opportunity.

Relief – Having taken a trade that turned a profit, you renew your faith that there is a future in investing and continue trading. You perfect your trading plan and never deviate from it no matter what.

Now you see, the issue is most people don't make it past the Despondency stage and quit trading. They convince themselves that it's not for them, they can't do it, they will never achieve the success other have, and they just give up. This mindset is why the statistic that 95% of trader lose money is correct, 95% of people never make it past the Despondency stage, so they told themselves to just stop trading. They never give themselves the opportunity to become profitable. Having experienced this ourselves and witnessed almost every single one of our students go through these stages, the ones still trading and profitable are the ones whom kept pushing and didn't stop at the despondency stage. The others withered away and had yet to return to the market. Some often make a return but never with the inspiration and mindset to succeed and overcome the battle they surrendered to the first time. If you make it through all these stages, you're almost through the psychological battle in trading and ready to take on the market. Below you will find a video attached to assist your progress through these stages further and give you tools and techniques to help you become a mind master in trading.

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