How to fight your trading demons
I know firsthand that when trading on the stock exchange, psychology is an essential element to achieve maximum results. According to statistics, 90% of traders lose their money because of the inability to control themselves.
Without discipline it is impossible to trade profitably. Psychology is at least 50% success rate.
Training people to trade on the stock exchange for quite a long time, I came to the conclusion that many, knowing the revenue system, with step by step algorithm for opening and closing positions, continue to lose money or at best are kept at zero. All this is happening because there are psychological errors in their trade.
To solve any problem, we must first understand the source of the problem.
I confronted such a problem – absolutely all the information provided on the Internet, trading books and other sources, was of a theoretical nature. No practical techniques and methods.
As a rule, it does not give good results. After all, if I tell you: “Guys, stop sweating, you need to control your emotions”, will this have any sense? Will you stop worrying at once?
I think the answer is obvious. So I decided to fill this gap and got firmly engaged in this topic.
Passion is an essential companion of anyone who has ever faced the opportunities of quick money.
At the same time, most often, traders blame entirely broken schemes for their defeat. But in addition to the schemes self-control plays an important role.
Gamble is an emotion, anticipating success. And the most important feature of gambling is inadequate perception of success. Passion for irrational actions may be even with the slightest hope of a “success”.
Often the cause of the irrationality and emotion exposure lies in false hope.
Hope is an emotion associated with the expectation of meeting the needs, necessity or desire.
Hope and gamble have very similar definition, however, despite this, the hope is a neutrally colored emotion. This feeling does not strongly affect the rationality of the trader’s actions, although in rare cases, false hope is much more dangerous than fear.
Excitement is much more associated with fear. Namely with the fear of a deposit loss.
It is important to understand the fact that gambling is not always a companion of an absolute deposit loss. There were instances when experienced traders, succumbing to gambling and betting thoughtlessly, enriched hundredfold.
However, the main danger of gamble is the lack of logic in betting. This factor makes the trade a “roulette”, where the chance of winning is 1 in 1000.
The greatest danger is the gamble which means a “desire for revenge”. For example, a novice trader has not yet developed his own trading system and can repeatedly drain deposits, each time increasing the amount of his investment 2-3 times.
Emotional balance of a trader is 80% trading success rate in the currency market.
In everyday life or in situations of extreme stress, a person has to overcome the dangers and difficulties that may threaten his life, well-being or health. This causes fear. Fear is an unpleasant sticky emotion, but it is fear that helps to get rid of danger or avoid it.
At each stage of development the traders become prey to different fears. Thus, a newcomer to the currency market will overcome a fear of the unknown.
In real life, fear of the unknown can be caused by a lack of experience in a new field of activity. Often a beginner does not know about the features of trading. Newbie cannot always cope with the terminal interface, for example. All this can have fatal consequences in view of thoughtless exchange transactions, which in 99% of cases lead to the capital loss.
The most effective way to overcome fear of the unknown is to read this and other blogs, to use a demo account. Perhaps, to attend free and paid conferences. This approach will allow to learn the basics and features, and no longer feel like a stranger in a foreign currency trading.
After mastering the basics of the terminal, as well as the slightest understanding of the market structure, the trader faces a lot more wide variety of fears. For example, fear of the capital loss.
Fear of capital loss lives in almost all mid-level traders, it is not as damaging as the fear of the unknown, but it largely inhibits getting profit for the trader.
There are only two ways of occurrence of this fear’s subspecies:
1) negative experience;
2) handling large amounts.
The negative experience occurs in everyone who lost their first deposit.
Thus, the operations performed by an inexperienced trader and the subsequent negative result – the loss of the first deposit (especially if your first deposit represented an impressive amount) are stored in the form of negative trading experience.
When such an experience a few things can occur:
1) Trader will cease to trade on the stock exchange at all and would say that online trading is another internet hoax;
2) Fear paralyzes the trader, and he cannot adequately assess the working scheme in future that would lead to further losses;
3) Fear pushes to act and to enter mutually exclusive transactions that lead to even faster collapse.
Even if the negative experience did not lead to complete devastation, its very presence almost always has a negative impact on the trader’s further fate. There are many cases when a trader, having the insider information, as well as a full trading scheme, which will provide him a considerable gain, would not take the risk, as he has a negative experience and is afraid of the capital loss.
The only way to get rid of the negative experience is to have a positive experience. Therefore, in any case one cannot quit the trade. To get a positive experience, you can analyze the activity of other traders, as well as view the dynamics of the market in previous years. Success stories can also motivate for further trade and to overcome the negative impact of the experience on the results of trade.
Handling large amounts can cause fear no worse than other, the above-mentioned reasons. However, in this case one should not confuse fear of capital loss with ordinary caution. When operating large sums, especially if the sum is borrowed, or it is an investment in a trader, a person begins to feel a lot of pressure.
When manifestations of a nervous breakdown the trader cannot adequately analyze the market, he becomes panic-stricken, and he can make rash trading, which is likely to lead to his complete destruction.
Visiting a psychoanalyst is a common practice among traders. Attending the psychoanalyst can help to get rid of the fear of the unknown, as well as help to overcome phobias, excitement and generally restore peace of mind of the trader.
However, we do not talk about such radical measures. Often it is enough to follow a few simple rules.
Do not get involved in leverage. Leverage, in most cases, helps to make transactions with a much higher capital but it increases the risks either. So, even a one percent fluctuation can completely ruin a trader. Therefore, if you are not completely sure about the performance of a trading strategy, it is better to be careful and do not use leverage.
Competent money management. Large sums are a subjective concept. For someone it is $ 1 000, but for someone it is a million. Often, the amount of value is not determined by the number of zeros, but by a percentage of total capital. The only advice that can be given in this case is to reduce the currency percentage in circulation in relation to all currencies. This can be done by reducing the amounts of transactions and replenishment of the deposit. The first, obviously, is more preferred.
Trade without fear and you are guaranteed success!
That’s all for now. Got any questions? Just ask the expert!