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How to get to grips with psychology and improve your trading

by , 21 May 2015

You may not have given it much thought before, but do you know psychology plays a big role in the way you trade?

It has a major influence on the trading decisions you make.

So what exactly is trader psychology? And how can it influence your trading?

Read on to find out…

What is trader psychology?

Trader psychology is the effect of your emotions and personal outlook on life on your trading decisions.

This means psychology has an effect on the outcome of each trade you put on.

To avoid psychology having a negative impact on your trading, it’s vital you understand these emotions and your personality traits. Once you do this, you can identify potential threats and take steps to control them.

Until you take this step, they’ll interfere with your trading.

One of the most damaging emotions is greed

Greed is an emotion that lurks in the mind of traders. The lure of making big profits on the market can unleash the greed monster within.

Greed can lead you to do a number of things, such as:

  • Put on a trade for a quick profit;
  • Hang onto a trade in case it does end up making you money;
  • Enter a trade too late just in case.

In many instances, greed does the opposite of what you want to achieve. It leads you to lose money. But it’s a very difficult emotion to overcome.

One of the best ways to deal with greed is to apply discipline to your trading.

Ensure you follow a strict trading strategy, and only enter and exit trades as this dictates. Don’t let greed interfere with any of your trading decisions.

The most experience you gain trading, the better you’ll become at identifying the effects of greed on your trading.

So there you have it. How to get to grips with psychology and improve your trading.

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How to get to grips with psychology and improve your trading
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