Psychologically Aware and Financially Successful

Trust not yourself, your defects to know; make use of every friend and every foe.
- Alexander Pope -

The vast majority of market participants naively believe that trading is merely about finding profitable market opportunities. Although it is necessary to find high probability setups to make huge profits, shrewd, winning traders know that their personal psychology is the single most important factor in holding onto them. Trading experts will tell you that the proper mental edge makes all the difference. Many traders know what they should do when trading the markets, but somehow they don't do it. Instead, they hesitate. They are overconfident or not confident enough. They are afraid yet deny their fear and mask it with a false sense of omnipotence. They succumb to strong emotions that overpower their rational mind. The possible psychological ailments that prevent trading success seem endless. If we survive in the markets long enough, though, we eventually come to understand the importance of personal psychology.


Psychological ailments are powerful, but most of us can beat them. It isn't always easy. It requires a desire to improve and a long-term effort to let the change sink in and have lasting effect. It is vital for you to be aware of the psychological ailments that may plague you, and work steadily to overcome them.


Winning traders are logical rather than emotional, for example. You must learn the ways in which your emotions can play a significant role in your investment decisions. Fear and greed drive market decisions. When most people are afraid they impulsively sell prematurely or hang on to a losing trade with a sense of false hope. You cannot allow emotions to impact you. You must develop emotional control and self-discipline that keeps you taking the most prudent investment choices instead of the emotionally satisfying ones. Accomplishing this is not impossible, but it does take time and effort.


A successful trader is confident and decisive. Although many traders know exactly what they want to do in critical situations, very few can actually follow through and do it. The rest don't, mostly because they freeze. The disciplined approach is to increase your position sizes slowly, so you're emotionally comfortable at the levels you're trading, and also to consider your alternatives in advance so you know what to do, without having to think on your feet, in response to every market eventuality.


With the pressure and the high stakes involved with trading the markets, even the most well adjusted trader can fall prey to emotional decisions. But allowing emotions to influence you will interfere with following your plan, which will in turn diminish your account balance. To prevent this, psychologically sophisticated traders work to gain self-awareness and use tried and true psychological methods to hone and keep their mental edge. They develop relaxation techniques, for example, and practice them regularly before, during, and after the trading day. They also pay close attention to the reality of the markets, and let the fantasies sent forth by their anxieties wither on the vine. They don't dream of vast riches, but stay focused on day to day issues, such as what setups to take, where to exit, and how to control their risk. Finally, they learn to recognize when their instincts or subliminal perceptions are telling them correctly that something is amiss, and to temporarily step back from trading to deal with the issue. Don't let psychological issues get the better of you. If you gain psychological awareness, you will trade more profitably.