Learning the Psychology of a Successful Trader

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It is alleged that ninety out of every hundred traders lose money. It is also stated that day trading is around 75% psychology and the other 25% is shared between your trading system and proper money/risk management.

Now I do not say that these facts are either true or false., but let us assume that they are possible. This would mean therefore that almost all traders are lacking knowledge in the area of psychology when it comes to trading in the stock market successfully.

Therefore we need to observe very carefully at how we are feeling, and also what we are thinking while we are trading on the stock market. All our trading activities are governed by the emotions of fear or greed or if you prefer the feelings of pleasure or pain. Whatever we do, we do it to either to experience pleasure or to avoid the feeling of pain and anguish.

We really need to take a good look at ourselves and decide what is it that is driving us while we are share trading, is it pleasure or is it pain? For instance, Do you dive into every trade even when the basic fundamentals are not quite right, just because you might miss out on the next big rise in the share price?

Or on the other hand is it Fear causing you to not enter a trade even when everything looks exactly perfect, because even the slightest possibility of losing your money is just too much for you to think about. So you sit there and do nothing, paralysed with Fear. Or when you do eventually decide to enter the trade, your stop losses are placed on so tight you hardly ever make any profit at all.

Does this sound familiar?

Nearly all traders I believe associate trading with pain. They are ruled by fear. The unfortunate reality is that every trader loses money at some time or other. It is part and parcel of being a trader. It's how you deal with it that matters and how you minimise your losses that counts.

If we feel pleasure with every profitable trade and experience pain with every losing trade then our trading career will be an emotional charged roller coaster ride of up and down feelings. And eventually you can take only so much, so you leave the stock market feeling very disgruntled vowing never to return again. But you do after a period of time only to find that you are trading exactly as you did before.

To put it into a nutshell the seat of the problem is that most of us are emotional traders at heart..

What can we do to overcome our emotional trading?

Basically we have to do is to start to change or our own trading psychology, we need to change the ideas we have formed of pleasure equals winners and pain equals losers.

So the very first thing we need to do is to set rules for your trading profitability. This is best achieved by having a pre set trading plan written down and placed in front of you. So you can refer to it at all times when you are trading.Stick it on your computer monitor is a good a place as any.As long as you can see it clearly.

The most important thing you must do when you have worked out your trading plan is STICK TO IT! Then and only then will you start to master your emotions and minmise those feelings of pleasure and pain. Once you have accomplished this you will have then started on the road to trading profitability.

Chris Strudwick is a successful share trader on the Australian Stock Market. For more info please visit my blog at www.asxnewbie.com.

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