To begin this section I have outlined some very, very common symptoms that manifest as a result of a negative psychology.
If you are suffering from any of these issues this section may be able to offer some practical tips to help you overcome them.
Psychology is usually the final hurdle that most traders have to overcome if they are to be successful; the snag is that it’s also by far the hardest part of trading.
Below are some common symptoms of a negative psychology, which more advanced traders suffer from:
- System Chasing. This is where you find a seemingly good trade plan or system and you start trading with it but after a short while you have a few losses so you start looking for another “better” system.You begin back testing this new system until you see enough past trades to convince you that this one is even better than the last one and then you repeat the whole cycle again. (All the time never actually achieving your goal of becoming a professional trader.)
- Undercapitalised or poor risk management. This is where you are trading and take a few losses but when you look at how much money you have lost you descend into a pit of despair and get an awful sick feeling in the pit of your stomach.The next time you see a trade opportunity you find yourself too frightened to pull the trigger and take it for fear of losing even more.
- Poor discipline. This shows itself when price just misses your trade entry or you see a big move by price in a certain direction and you think you’re going to miss the boat.Instead of sticking to your plan and waiting for another valid set up to occur you just jump right into the trade.Usually price reverses on you for no explainable reason and stops you out much to your dismay and frustration.
Another form of this can be simply overtrading or trying to force a trade when there is no valid set up because you are bored or need to trade.
- Unrealistic expectations. You hear someone tell you how many pips they are making every single week or you over expose yourself to all the hype on the internet and before long you feel that you should be making “X” number of pips per week and that if you don’t you are some kind of failure in the trading world.Or, you come into trading thinking that because you are a “day trader” you can put $10’000 into your Forex account and start living off it within the first few months.Or, you think that making only a few pips profit per month is not good enough.
Another popular thought is that it’s entirely reasonable to expect to make a profit every single day and more so every single week.
- Not trading in line with Market dynamics. This is quite simply using the wrong methods to attempt to make money in the markets. The major way that people attempt to do this is by using “Robots” or automated trading systems which may work for several months but when they do fail the losses far outweigh any gains that you have made up to that point. I have never seen an automated system that works over several years consistently, without incurring catastrophic losses at some point.
Another way that traders suffer in this regard is relying too much on lagging price indicators, most of the time they don’t even fully understand how an indicator generates its bias.
One thing that can also be included in this symptom is the habit of not using the higher timeframes and instead trying to get all their information from just one small timeframe.
If you are suffering any of these symptoms you need to react as soon as you can and work really hard to resolve them; this section is designed to help you do just that.
So let’s now go through each one of those above problems that traders commonly have with their psychology, and see what can be done to help you overcome them.
Next: System Chasing
