Being a trader seems easy enough for most people as long as you have the right tools and knowledge to use. However, to be a successful trader, you have to learn more than just tools, strategies, and indicators. A large part of successful trading comes from mastering your mind and your thoughts.
Here we will talk about the most common psychological mistakes traders make and how it affects their trades.
REVENGE TRADING
These are the type of traders that can lose their entire account in just a day or a week. After taking a trading loss, revenge traders will throw out everything they know about proper position sizing and risk management and then trade as much as they can to make back that loss. This may work once or twice, but if you keep this up, you will have many more losses than you can manage. This will not only affect your bank account, but it will also affect you psychologically.
The market does not care about your money or your feelings. That’s the reality. You are 100% responsible for anything that happens to your account. If you are currently upset enough for your losses and thinking of revenge trading, it would be much better to trade in smaller sizes and re-evaluate your risk management. This will allow you not to get upset with those losses, and you’ll be able to start making decisions based on logic rather than emotions.
Being Undisciplined and Uneducated
A trader who lacks discipline can never make a successful trader. Most of retail traders are not having proper education and on the top of that not having discipline a sure shot recipe to blow.
The main culprits are what I like to call ‘System Jumpers’. These are traders that are constantly tweaking and changing their trading methods. These traders do not realize that learning to trade a system efficiently takes time.
System Jumpers are traders who lack the discipline to stick to, and learn how to trade, a system. They try it for a week and when it doesn’t work they jump to the next system or method.
Need to be Right on each trade
Typical Story of Retail trader . Traders opens his platform and enters a long trade as he saw someone saying today market should be bullish. He targets 30 Points target with a 15 points SL in NIfty Future. The trade goes against him immediately.
It goes down, first five points, then ten points, and then 15 points. When it reaches 15 points, trader decides he doesn’t want to lose another trade and moves his stop loss down.
The price keeps falling and trader continues to move his stop.
Eventually trader closes out his trade and he has lost a huge portion of his account.
Most of traders are not able to accept that they are on the wrong side of a trade. They keep pushing the stop down in the hope that it would eventually turn around. The need to be right is an account killer.
The Desire to be Rich
The desire to be rich manifests itself in many ways. If you think about it, the majority of the issues that newbies have, such as overtrading or poor money management, stem from the desire to be rich.
Trading will not make you rich in the short term. It will likely take years before you’re trading well enough to leave your day job. If you started trading last week and you plan to quit your job in six months, because you anticipate being rich enough to trader for a living , you are living in a fool’s paradise
Lack of emotional control
Your mind always assumes the worst. It does that to protect you from harm. Because there is a potential that you’ll lose money and all the mental anguish that brings, the mind tells you not to do a trade.
You have to learn how to override this self-protecting mechanism if you want to be a trader. Talk to your mind. Tell it you are fine with doing the trade. Remind it that you have a stop placed and you will not be harmed if it doesn’t work out.
Convince your mind that in order to make money trading you need to take risks and the risks that you are taking have been carefully planned and measured.