The importance of psychology in trading

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Avatar for Luna1999
2 years ago

In trading in a market, many traders fail to trade, be it crypto, stocks, or foreign exchange. Usually, traders who fail or lose money are caused by several factors, one of which is an error in market analysis. Even so, many successful traders make good profits. This is due to good analysis and a good mentality.

An important factor in the success and failure of a trader is the psychology of the trader himself. A psychologist as well as a trader named Dr. Alexander Elder, in his book entitled "Trading for a Living, Come into My Trading Room" states that the most important things that must be considered in trading are Method, Money, and Mind. Well, I will first explain the three important things.

  1. Method

    This is a strategy used in trading. In this case, the ability to analyze the market when it is bearish or bullish. By understanding the method, we can know where the candle or chart will move.

  2. Money

    This relates to financial management and the risks that will be taken for a trader. By understanding money in trading, we can manage capital and minimize losses.

  3. Mind

    This is closely related to trader psychology. By understanding the mind, traders can control their emotions in trading. This is the most important factor in trading.

The problem that occurs today is that many traders and investors only focus on Method and ignore Money and Mind. In fact, successful traders do not ignore these three important things, especially Mind. Because mental in the psychological aspect of a trader plays a big role in the success of a trader.

In making decisions, usually, a trader is influenced by two emotions, namely feelings of fear and feelings of greed. These two emotions often play with the emotions of traders, so they cannot think clearly in making the right decisions, and ultimately fail in trading.

If a trader can control the psychological aspects in each of them, they can also control Method, Money, and Mind, so that they can achieve success in trading. Until here, first a brief explanation about psychology in trading, I hope this article is useful for anyone who reads it. Thanks and regards.

The lead image source by Unsplash

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Avatar for Luna1999
2 years ago

Comments

Yes you are right. Discipline and removing emotions from trading leads to better results. That's why the most successful traders are using algorithms (algorithmic trading) with bots (robots) and AI (machine learning).

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2 years ago

I agree. Understanding technicals, understanding financial risks, and being able to control emotions are the keys to success in trading.

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2 years ago

Yes that's correct. Many traders fail because they only rely on technique.

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2 years ago

It truly is a mind game. One must have enough knowledge when it comes to trading and must consider a lot of things.

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2 years ago

That is very correct. Many fail because they only focus on methods alone. Those who are successful in trading are good emotional controllers.

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2 years ago