Lesson 7: Trading Psychology
1. Psychological Training for Traders:
● The Secret to Success
➢ Entry, technical points -10%;
A day trading system must include entry points or specific conditions
that must be met prior to entering a trade.
➢ Financial Management -30%;
Involves the planning, controlling, organizing and observing the
financial assets properly to gain organizational goals and
objectives. This can only be obtained with an effective plan and
system.
➢ Strong psychological abilities –60%;
✓ Emotions can have a negative impact on your career as
a trader. One must learn how to control one’s emotions.
✓ Awareness is power – become aware of all the biases
attached to day trading. For example: Sensory Derived
Bias, Avoiding the Vague, and Tangibility of Anticipation.
Being aware of these biases can lead you to success or
failure in the trading business.
✓ Learn Control Over: Stress, Mindset, Mastering Your
“Edge” (advantage)
✓ Visit the Internet: the internet has a huge resource for
helping you develop and understand all the psychological
tools and abilities needed for conquering the trading
world.
➢ Most traders focus on the first 10%
Mastery of trade timing includes having powerful stratagems
within one’s system to facilitate in calculations for the greatest
trigger values for a trade validated by watchful and patient
analysis.
● Stages of Development from Amateur to Professional;
The first five skills that every trader from beginning to end need are: analytical skill,
research, focus, control, record keeping. Mastery of these skills as
part of your system will help you become a professional trader.
➢ Stage 1 Unconscious Incompetence
➢ Stage 2. Conscious Incompetence
➢ Stage 3. The Eureka Moment
➢ Stage 4. Conscious Competence
➢ Stage 5. Unconscious Competence
https://www.tradeciety.com/5-stages-of-profitable-trading/
2. Market Psychology:
➢ Market psychology is the overall sentiment or feeling that markets and
their participants experience at any particular time
➢ Price is a psychological event –a momentary balance of opinion
between bulls and bears
➢ Patterns of price action reflect the mass psychology of markets and
market participants
➢ BULLS - Looking for LONG trading opportunities; Associated with
increased consumer confidence; Increased anticipation of future capital
gains
➢ BEARS - Looking for SHORT trading opportunities; Associated with a
general decline in the stock market; Transition from wide investor
optimism, to investor fear and pessimism
3. Fear vs. Greed:
➢ The Self is made up of two primary emotions that affect our mental and
behavioural state;
➢ What is Fear? – the emotion caused by the belief that something
dangerous is likely to cause pain or a threat.
➢ Overcoming Fear: Four Trading Fears
▪ Fear of Losing
▪ Fear of Missing Out
▪ Fear of Letting a Profit Turn into a Loss
▪ Fear of Not Being Right
By controlling our emotions and having a good system in place
we can learn to overcome all of these fears.
➢ What is Greed? – the intense or selfish desire for something
especially wealth or power.
➢ Overcoming Greed – Recognize, Stay with System, Always Stay with
1:2 or less ration.
By controlling our emotion and having a good system in place we can
learn to overcome our greed.
➢ Symptoms of Fear & Greed
Fear and Greed Indexes like the one available on CNN rate how fear and
greed are moving the market.
-arousal of consequences to reduce negativity and increase positivity
- hope
- the idea of “free”
- irrational emotions
- override the rational decision making side of your brain
4. Common ways to lose:
➢ Missing trades –three types - Not focused –stay in the ‘zone’. Do not
take trades whilst; being distracted, if you’re tired and/or over
emotional; Hesitating, especially after a loss; Creating trades that have
no logic and ignoring trades that make sense (stick with your rules)
➢ Overtrading –never try to make up for losses, missed trades, or trade
from boredom. Profits come from consistent and persistent action, not
reaction; Trading against the momentum or trend –never try to pick
tops and bottoms;
➢ Micromanaging trades –Don’t get out unless the trade hits your
targets or stop. Let the trade run; Overconfidence –you don’t know
where the market is going, the market is not always rational
5. Dealing with losses:
● Remember:
➢ Trading is about probabilities
➢ The market does not owe you anything...it doesn’t even know you exist
➢ Check -are you on a learning curve?
➢ Know your daily/weekly/monthly/yearly loss limits
➢ Every trade is a new trade & every day is a new day
➢ Learning never ends
6. Learning from Experience:
● After trading; - The best gift you can give yourself is being organized.
Having a system for trading is great, but it will all be for nothing if you don’t
have an equally successful organizational system. Keep a log and write
down all key points and information. Also, I personally recommend
keeping a working journal with you for you to write down things you need
to remember in your day, things you learn from mentor, etc. Always carry
this journal around, and you will never be lost.
➢ Review the trades you took and the reasons why you took them
➢ Keep a Log
➢ Entry and exit points
➢ Profit and Loss
➢ Mistakes made
➢ Reasons why you took the trade
7. General Trading Guidelines:
➢ Trade with the trend
➢ Enter at clearly defined technical levels
➢ Exit losing stocks at your stop
➢ Do not exit winning stocks too quickly
➢ Trade with amounts that you are comfortable with
➢ Avoid trading according to rumors
➢ Avoid trading in news
➢ Avoid trading during the first and last minutes of market hours