Thursday, June 12, 2014

Psychology Of Trading And Investing

Trading is a mixed bag of art and science together. Science is used to identify trades, based on price action, patterns and to identify support, resistance,stop and target. While managing trade is purely an art, which completely involves risk control of loss and controlling our emotions during trading. Both of them are equally important and responsible equally for success or failure in trading.

          However most of people concentrate on first part of trading, which is trade identification, that is, what pattern or indicator should I follow, which one to buy etc. Novice traders try to focus or find methods which will make every trade into a successful trade. This is  a waste of time and effort. No one in this market could be right every time and in every trade.

         When we enter in a trade, the story changes simultaneously and our emotions start to change our analysis, every single minute or hour or after every pullback. We begin to doubt ourselves and our trade, whenever the trade goes against us, even a little bit. Most traders fail at that point, panic and lose money. This is the point where strong psychology helps traders.

           Psychology helps traders to follow the rules during trading (that is, wait for either stop or target during your predefined time frame) and to maintain discipline. This is the reason we should write down our rules of trading on paper and always keep them during trading.

           The conclusion is: psychology is as important as analysis in trading and traders should  concentrate on improving their psychological strength. A method which could be used is meditation, for improving trading psychology.

1 comment:

Vibhor Jain said...

Agree fully with you...have gone through all fear, greed. My trading system is still evolving to ensure i dont succumb to emotions.