Trading _ Psychology Skills
Master Your Trading Psychology Skills in 7 Steps
Everyone wants to know how to master trading psychology. These seven tips can help…
Maybe you don’t feel ready to throw in your hard-earned cash just yet. Set up a paper trading account. You can practice real-time trades without all the stress and emotion that comes when real money’s involved.
Paper trading can help you build confidence.
If you’re new to trading, a paper trading account can help you learn the trading software and the process of reviewing and executing trades. Use it to practice using limit orders and stop losses. Learn how to manage your risk.
Practice paper trading for a few weeks or months. Keep detailed records of your trading performance over time. You’ll need to account for other factors, too. Are you in a bull market or a bear market? When and if the market changes, your strategies may no longer work.
By the way, paper trading isn’t just for beginners. It’s a handy tool to return to as your skills change and grow. Use it to try a riskier trade or a strategy you’re not ready to bet real money on.
Assume Your First Losses as a Fee for Learning
There’s nothing quite like jumping into a live account — even after months of practice.
It’s just … different. Now there’s real money involved. A stock simulator can only do so much, after all.
Using real money can set your trading emotions on fire!
You might panic and exit a position too early when one of your holdings starts to drop … Then curse yourself when it bounces back to your initial goal a few hours later.
Or you might hold on to a position too long out of greed — hoping to squeeze out a little more. And you’ll ignore every red flag. All traders go through it.
Think of your initial losses as your tuition fees. It’s all part of your trading education.
Observe the Habits of Successful Traders
There’s no need to reinvent the wheel. Instead, learn from the thousands of successful traders who’ve gone before you.
It’s easier than ever to learn from seasoned traders. You can find some of the best on Youtube.
Top traders spend time learning the basics. Then they work to constantly seek more knowledge and do more research. They scan stocks daily and continue to grow.
Most importantly, they set goals. They scrutinize their process, trading psychology, and progress. Of course they make mistakes, but they learn from them and improve.
The best traders are proactive, not reactive. They focus on the process of finding great market opportunities, instead of on the outcome, like how much money they might make.
Set Stop Losses to Protect Your Account
“It can’t possibly go any lower … right?”
Remember those words as you watch your favorite stock continue to drop, point by point. Through multiple support levels and against all indicators, you’ll hold on to hope.
If you’re too emotionally invested in a stock, you’ll find it hard to pull the trigger when it’s time to sell.
You must set stop losses in advance. No excuses.
The market won’t bend to your will. It can and often will do things that you don’t expect. It may seem to defy reason and everything you’ve learned. Accept the random nature of the market.
Cut Your Losses Quickly to Preserve Your Trading Psychology
Some market waves are simply too strong to paddle against. When they come, learn to go with the flow and cut your losses.
You want to keep your stop losses wide enough that a small dip won’t kick you out of a position. A stop loss also needs to be tight enough so you immediately sell when things don’t go as you expected.
Take time to find that balance. Err on the side of caution.
Choose Your Favorite Patterns and Stick to Them
Everybody has preferred chart patterns that seem to work best for them — head and shoulders, cup and handle…
Looking for patterns is a big part of trading psychology. Patterns tend to repeat, so identifying can help you in your trading.
But you have to find what works for you. Pick two to five of your favorites. Practice recognizing when they occur. Back in the old days, I kept binders full of charts so I could review as often as I needed.
Learn How to Properly Read News Catalysts
You can have the best technical analysis and still go broke if you don’t also take news catalysts into account.
Most people read a news story and assume that the news will be a catalyst. But by the time you read that news, so has every other trader. And they’ve already acted on it.
A smarter approach is to do the opposite. Use a stock screener to check out stocks first. Then look for a news event to explain a stock’s performance.
Several stocks within the same industry might rally because of the same catalyst … but maybe there’s one lagging that you can still jump on.
Use a Stock Screener to Locate Your Best Stocks to Trade
Picking the best stocks is no simple task. There are so many out there. It’s hard to keep track of what different stocks are doing day to day.
So … how do you find useful information in stacks of seemingly useless data?
Screeners can filter through thousands of stocks to help you find companies you want to trade. Then you can focus on those that meet your criteria.
Stock screeners are an awesome place to start, but they don’t give you the whole picture. You’ll need to do more research to see if there are company-specific issues like labor problems or lawsuits. With a platform like ChartInk
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