Trading is heavily influenced by the psychological individual person. The failures or success of a trader can often be brought back to the psychological state they were in when entering or exiting a trade. To consistently trade successfully, traders need to temper their emotional swings. Doing this is not a today to tomorrow thing for most traders, but a gradual process of learning, self questioning, familiarization and application of discipline.

Knowing one’s own personality, risk tolerance and lifestyle is an important part of any traders business. Here are a few insights into trader psychology that can help traders on the path to a better, more successful trading career.

Trading and Psychology are Connected

While psychological state will affect your trading, your trading will also affect your psychology. Frustration because of bad trades and jubilation because of good trades will both impact on your future trades. As a trader you need to smooth these emotions to a point of near indifference if you are to succeed in not being affected psychologically buy both good and bad outcomes.

All Traders have Emotional Swings

Even the most experienced traders experience swings of emotion. These emotional highs and lows occur whether the trader is winning or losing and in Bull and Bear markets. No trading method is successful 100% of the time all the time, simply because systems are executed by a people and people are emotionally affected by fear and greed.

Over and Under Confidence Affects Traders

During profitable runs traders become over confident to the point where they forget that external factors such as disasters can happen. Conversely, during losing runs, traders become under confident. Both scenarios affect and disrupt the smooth and controlled emotional pattern traders need to be capable of trading well.

Size Does Matter

Taking positions that are to large is a sure way to emotional damage. The larger a position, the more extreme a traders emotional swings will be when they win or lose. To avoid extremes of emotion traders need to trade in sizes that are balanced and diversified in relation to their overall portfolio.

Only Applied Knowledge is Power

Learning by taking courses or reading books is a valuable input but will only serve to build traders expertise. Only by making trades, winning and losing, can a trader build experience and skill. The University of Life is the best schooling a trader can get and an education that can only be gained by taking a position in the market and come up against the professionals. That said, a trader who does not take courses or read will not have the expertise with which to take on the market.

The Only Constant is Change

Markets are cyclical, trends change, volatility increases and decreases. The market is constantly changing and it does so across time zones. Because of this it is unreasonable to expect any trading system to always be successful across any given market. The only way a trader can succeed is to embrace change, master a market and change strategy accordingly.

A Traders Life is a Students Life

To maintain an edge on the market, traders must resign themselves to a constant life of learning through education and experience. Good traders, when experiencing a prolonged period of draw down, always turn to a process of relearning. Successful traders do go through bad times, but successful traders are the ones who foresee the bad times, save money and then work to relearn while preserving to financially survive the lean times.

Finding Compatibility is Key

The volatility of markets, market sectors and companies, even companies within a given sector, can vary greatly. Traders need to find compatibility between their personal trader profile, trading method and the market, sector or company they are trading.