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The psychology of trading and books that will help you understand it. Trader, help yourself! Tools of self-psychology Trading psychology how to tame the forex market

We discussed techniques and quick, effective tools for trader self-development. In this article we will talk about the use of these tools in practice.

Lots of unreasonable deals

Let's say we know a trader who is struggling with the problem of impulsive trading. He has a general understanding of the trading plan, strategy and trading system. However, he constantly opens many trades that do not meet his trading criteria. In material terms, this costs him quite a lot and causes significant damage to the deposit. How can such a trader help himself at least alleviate the problem?

To begin with, let us recall that methods for quickly changing problematic behavioral patterns are effective only when these patterns manifest themselves situationally.

The first question such a compulsive trader must ask himself is whether he is equally impulsive and undisciplined in other areas of his life outside of trading, and whether he experiences Negative consequences from this impulsiveness in general.

If the answer is yes, this will provide indirect evidence that impulse trading is not just a situational problem. Instead of trying to solve the problem on their own, such a trader needs to find a professional to help understand the problem in more depth. There can be several reasons for this problem. This may include a problem related to attention deficit or hyperreactivity. This may be the result of a mood disorder. In any case, a comprehensive and objective assessment is necessary.

However, if this problem manifests itself only in trading, then the chances of success of self-help are much greater.

If trading is impulsive

The next question to answer is: “ what is the problem that the trader is trying to solve with impulse trading? We said above that people often call problems when in fact there are attempts to solve the problem. That is, we are not fighting the root problem, but, as it were, its derivative.

In the case of compulsive trading, it may be an attempt to cope with fear of missing out. Such a trader is internally afraid that the market will move without him, and he will miss the opportunity to make money. Unfortunately, this is just an appearance and such attempts to “jump into the market” end in loss of money.

In this case the problem is determining the trader's capabilities. In his opinion, there is a direct correlation between market movement and his ability to make money. However, market movement in itself is not at all an opportunity to make money. Rather, this is an excellent opportunity for loss if you violate your own rules and trading guidelines. Behind the impulsive transactions of such a trader there is a kind of message that says: “I must be able to anticipate the movement of the market. I don't want to make mistakes."

One of the most real incentives for such trading is the desire to avoid self-criticism and self-blame for the fact that you could have made money, but missed the opportunity, could not correctly determine the direction of the market, became cowardly, and became cowardly. Impulse trading is essentially a way to deal with this problem. Once we have correctly and accurately identified the problem, finding a solution becomes easier.

Based on the principles of positive psychology, we can recommend that such a trader carefully monitor his trading and determine the moments when he trades NOT impulsively.

It is important for such a trader to understand that internal self-criticism is partly appropriate when it comes to behavioral frameworks. Without it, we would all turn into sociopaths. And rather, you need to blame yourself for not changing your line of behavior and approach to trading. After all, this is where the real opportunity to achieve changes in trading results lies.

If the market began to move without your participation, then you always have the opportunity to open another transaction, in a different instrument, but with full compliance with your settings and parameters.

On this moment his best opportunity- is to do what he knows how to do best.

Visualize your trade

Before the start of the trading day, it is advisable to complete mental rehearsal of trading. This is akin to meditation, where you imagine the entire trading process and focus on your skills and capabilities. When you want to change your behavior, you can mentally imagine “the old you” and the “new you” and contrast one with the other. This internal dialogue about “new” and “old” helps to consolidate changes in your own consciousness.

Then, at the end of each trading day, you can fill out not the trading journal, in its usual form, but special card, which is held comparative analysis performing installations.

In some ways, changes are easier for us, but in some things it requires more complex and lengthy work. internal work. IN in this case we can say that no significant changes have occurred. You just started doing what you should and know how to do, and stopped doing what you shouldn’t. By focusing on the solution rather than the problem, we turned our own guilt and obsession into additional opportunities. Although it may seem like you have become more disciplined, in reality you have simply reconsidered your approach to taking advantage of opportunities.

Rapid change occurs in four steps:

1) Consider the problem situation not as an independent problem, but as your way of solving another problem. Ask yourself, what real problem am I trying to solve by thinking, acting and feeling the way I do?

2) Find your starting point. Once you understand what your core fear or worry is, go back to your trading and identify instances where you successfully addressed that fear. The trading journal you keep will help you with this.

3) Create your own behavior pattern one of those fortunate occasions when you traded as well as possible. Remember in as much detail as possible about all the circumstances surrounding your situation at that moment. successful trading. Try to repeat your actions that led you to a positive result.

4) Repeat these steps consciously until they become a mechanical habit for you. It is not enough to simply initiate change. It is necessary to create from them a habitual pattern of behavior and mental attitudes.

I hope these tools will help you become your own coach or psychologist. If this works out, then you will be able to further independently develop the abilities and qualities you need.

Read about trading psychology in our

Basically, the question of trading psychology is asked by people working on strategies, the result of which depends on whether the trader guessed the direction of the asset price movement or not. Let me remind you for those who have forgotten, or maybe haven’t read my blog at all, that there are quite a large number of professional strategies and their varieties in which you do not need to determine the direction of movement: Pair trading, Arbitrage, Buying and selling volatility, etc.

So... emotions in trading are always inherent, just like in any other area of ​​human activity, and especially in areas that relate to money, but they manifest themselves differently depending on the character of the trader and the strategy he uses.

Psychology of trading. First emotions

Emotions in trading do not appear immediately. First, a newly minted trader, hung with noodles of advertising banners and brochures claiming that it is easy to make money in the financial market, opens an account on a positive note, installs a terminal and opens his first deal. There are no emotions other than a little euphoria...

The first emotions appear at the moment of the second or third loss (at the first, the trader still does not quite understand what happened, and even tries to sensibly analyze the situation, as naturally as he can). They begin to affect themselves with each subsequent trade:

  • fear of entry
  • early exit
  • sleepless nights

And the more a person doubts his actions, the more his brain panics. What confuses a trader the most? Of course, the direction of price movement was incorrectly predicted and, as a result, the resulting loss.

The psychology of trading is designed in such a way that each loss resulting from emotions gives rise to the next emotional transaction no better than the previous one, and so on increasingly, if a person does not have the strength to stop, or the money does not run out.

However, “to be afraid of wolves, don’t go into the forest.” You need to do something about your fear of the market if you want to exist normally in it.

Reduced psychological dependence

Fighting “cockroaches” in the head is the task of the owner of these “cockroaches”, but very few people can do this.

The more free time a trader has, the more time he devotes to looking at the chart with an open position. And then he starts asking questions: “maybe I miscalculated something?”, “maybe I entered early?”, “maybe I set a very short stop, and what if it gets caught?” or “I’ll go out now, while the position is in the positive!” and so on. In trading you need to come to terms with the idea that you will NEVER be right in all trades. You need to be prepared for a loss. And to be ready for it, you can’t get hung up on one open trade; you need to spend your time looking for new opportunities for new trades.

A professional trader spends 99% of his time searching for an idea, 1% of his time on performing trading operations on the idea found and making planned adjustments to open positions, and 0% of his time on reviewing positions for which the values ​​designated by the strategy were not achieved. You need to be in constant search- this is the job of a trader. And if a trader does his job well, he will have no time left for emotions, and the issue of trading psychology will fade into the background.

Inversion Method

If you can’t control yourself when working on “directional” strategies, in which emotions, as I wrote above, are expressed most strongly, it may make sense to look into delta-neutral strategies such as Pairs Trading or Volatility Trading through Options, for example, which do not need to determine the direction. By the way, it is delta-neutral strategies that are used by portfolio managers in funds and traders in banks. Maybe that's why these guys are so mentally stable?)))

I’ll just say right away: the fact that a strategy is called delta-neutral does not automatically make it break-even. The lack of need to determine the direction is more than compensated by a large number of calculations, which may be a disadvantage for some, but the influence of the psychological component in such trading is much lower. Namely, this factor can fundamentally solve the problem of stability in trade.

In matters of trading psychology (and in matters of trading in general), you need to be honest with yourself. You can only deceive one person in the financial market—yourself. And by deceiving yourself, you will “feed” other bidders.

My personal opinion is this: “if you are confident in the effectiveness of your trading strategy, what emotions can we even talk about?” Panic is completely justified if there are doubts about the viability of the strategy. And given the density of such strategies on the Internet, it is not surprising that every first-time trader is interested in the question of trading psychology.

Trading Psychology: The Basics is the first article in a planned series of articles that will examine various psychological aspects of Forex trading.

You can often hear from successful traders that psychology is the most important component of success in the financial markets. Various numbers are cited, but most agree that at least 50% success depends precisely on psychology, not Is it so? Let's figure it out.

As an example, let's take the classic case of a failed deal and analyze what caused it.

Psychology of trading, example one.

The trader launches the trading terminal. In general, the trader’s financial affairs are not going well, he must pay his mortgage and car loan, and he also needs money for other things. You need to somehow earn more and, of course, you should never lose, because every penny counts. With the burden of these thoughts, the trader opens the terminal. What trading outcome do you think this trader is likely to have? With a high degree of probability, we can say that such a trader will lose, and well, if not the entire deposit. Because:

  • Firstly, You can't trade money you can't afford to lose, this creates strong psychological pressure.
  • secondly, in general You should not start trading while under the influence of any strong emotions, this contributes to making impulsive and rash decisions. And impulsive and thoughtless actions always lead to disadvantages. This is the psychology of trading.

The second example of how psychology works in trading

The position is open and the trader feels inspired - mentally he has already made a profit. The trader minimizes the terminal and is distracted for an hour to mind his own business. Returning to the terminal an hour later, he discovers that the price has moved against him and will soon reach the stop loss level. Greed trader does not allow him to accept losses and he decides move stop loss further. Trading psychology has begun to take effect. Trader afraid (fear) that the price will run somewhere far away if he moves away from the terminal. Now fear and greed move the trader and he no longer allows himself to move away from the terminal for a minute and looks at the chart as if enchanted, and the tension only grows from this. Meanwhile, the price continues to creep against. Now it is approaching a new stop loss level and should soon “knock it out”. Here the trader takes over hope that everything will work out and the price will reverse. He finds some “reinforced concrete”, from which the price will “bounce 100%” and is averaged with a double lot, and the stop loss is removed altogether. And it seems like this is not his first day on the market and he knows what the psychology of trading is, and usually he would never do such stupid things, but here it’s all about emotions, his mind is clouded. And the price whistles through the “reinforced concrete” level and takes with it a significant part of the deposit. Heartbroken, the trader manually closes the position and receives a fat minus, which would not have happened if not for the fear and greed to which he gave free rein. That's how important trading psychology is. Stories like this are as old as the stock exchange itself.

Fear, despair, greed, tension, excitement and even joy, jubilation, euphoria - all these emotions enemy for the trader! The psychology of trading is such that the only emotions that you should maintain in yourself during trading are calmness and composure. This is the only way you can make informed decisions, act consistently and wisely.

The luminaries of the stock exchange game say that trading should be a boring and routine activity for a trader; this is described in books and this is discussed in many good seminars. What we mean here is that forget about the excitement and overflowing emotions.

Of course, there are certain tricks and techniques that allow a trader to relax and concentrate.

The simplest trick is not to look at the terminal! You opened a position, set stop loss and take profit levels and that’s it, closed the terminal and walked away from the computer, now nothing else depends on you, His Majesty the market will do everything. This approach allows you to get rid of the tension and anxiety that inevitably arise when a trader “like a hawk watching for prey” monitors the price. But because of this, she will still go where she needs to go. This is the psychology of trading. Read more about methods of monitoring your psychological state during trading in the next article.

Many books have been written about the psychology of Forex trading. All market researchers confirm that it is the correct attitude towards trading that largely determines the success of trading. But usually everything comes down to a statement of fact; a ready-made method for bringing thoughts and emotions in the right direction is not given. Today we will take a closer look at this issue and give you a number of tips that will take your trading to the next level.

What influences trading psychology?

Most of a trader’s mistakes are a consequence of psychological problems. Let's look at a couple of examples:

  • Premature entry into the market. Emotions overwhelm the trader; he does not wait, for example, for the chart to rebound from the trend line or for the formation of a Japanese reversal candle. It seems to the trader that if he waits for the final formation of the signal, he will not be able to enter the market profitably. Usually the consequence of such trading is a series of losses.

An example of how emotions lead to losing trades.

  • Inability to cut off losses. The trader either does not set a stop loss at all, or constantly moves the SL when the chart approaches it. The problem is still the same - greed, inability to admit one’s mistakes and cut off losses. A triggered stop loss should not cause you to panic. If you did everything in accordance with the rules of the trading strategy, then you did everything right. No trading system allows you to trade without losses!

In this example, out of greed, the trader moved his stop loss and ended up more than doubling his loss.

  • Excessive trading frequency. And in this case, trading psychology comes to the fore. The inability to cope with one’s own emotions leads to the fact that a trader sees lost profit behind almost every candle. Sooner or later, self-control is lost and transactions are concluded in any way, just not according to the rules of the trading system, just to be in the market.

In this example, the trader is watching the chart too closely. It is impossible to take all his movements without exception; no strategy is capable of this.

  • Inflating the stop loss. Another feature of human thinking. It seems impossible for a trader to work with small stops; it seems that the chart will immediately knock him out, so the stop size is deliberately overestimated. Don’t do this, if the strategy specifies, for example, a stop loss of 20 points, then set it at 20 points. As an example, we can cite the Sniper strategy, in which trading is carried out with stops even less than 20 points and the percentage of signal processing is at the level of 80-90%. Details about the strategy can be found at the link below.

If you look at it, in most cases the basis of an incorrect decision or action taken is psychology. We recommend that you watch our webinar in the video below, where this issue is discussed in as much detail as possible.

How to overcome your habits and form the right trading psychology?

We will not limit ourselves to just stating the fact that psychology in trading is important and the right attitude reduces losses significantly. Below we will give a number of specific recommendations, the implementation of which will increase the chances of success in trading.

1. Separate emotions and chart analysis

We assume that you have a trading strategy and you work only according to it. Previously, through history, you were convinced that over a long period of time it consistently generates profit.

You must learn to ignore emotions. If the conditions for entering the market are met, then enter into a deal. You must be like a trading robot that acts strictly in accordance with the algorithm embedded in it.

In the specialized literature you can find such a term as "analysis paralysis". This phenomenon is that a trader simply loses the ability to think soberly and make informed decisions due to an account drawdown.

The psychology of a trader is designed in such a way that any loss is perceived extremely painfully. In this situation, we can advise you to remember that Forex statistics consist of many transactions. And the fact that there is currently a slight drawdown on the account does not mean anything. This happens to everyone without exception.

2. Don't be afraid to lose profits

Along with the inability to cut off losses, traders have a problem such as the inability to let profits grow. Remember, when the chart goes against you and you constantly move your stop loss, it still continues to go in a losing direction. The same thing happens with profitable trades.

Due to the fear of losing the profit already received, the trader cannot soberly assess the prospects for the subsequent movement of the chart. In every candle he sees a sign of an imminent market reversal. As a result, his nerves give out and he closes the deal with a profit, but the amount of this profit is significantly less than what he could have received. We are talking again about the psychology of trading.

An example of how to get the most out of a deal. Partial profit taking and manual trailing stop were used.

How to deal with this? Use trailing stop and partial profit taking. For example, at a fixed profit amount in points, close half of the transaction, and transfer the rest to a trailing stop. Or manually move SL following the price at local extremes.

3. Monitor how your physical condition affects trading

A trader’s mood for trading is a fragile thing and it can easily be disrupted by external factors. For example, you didn’t get enough sleep, you don’t feel well, there are troubles in your family or at your main job. Trading psychology also includes these factors; there are no trifles in this matter.

  • Don't neglect sleep. Make a schedule for yourself, do not try to sit all night in front of the monitor in order to look for entry points into the market.
  • Pay attention to physical activity. Going to the gym, swimming pool, cycling, walking with the dog - it doesn’t matter what you choose. The main thing is that you do not sit in front of the monitor for days.
  • Balance your diet. Your well-being, and therefore your focus on trading, depends on this. It is difficult to think about the market if, for example, you are haunted by a feeling of hunger;
  • Rest, this is important. Your efficiency and sobriety in your perception of the surrounding reality largely depends on how well you rested. So get yourself a hobby that will become your outlet.

Trading psychology is formed through many small details. Not all of them are directly related to markets.

How to get out of the vicious circle of unprofitable trading?

For many beginners, getting started in the Forex market looks something like this:

  1. Search stage– the trader has a superficial understanding of the market, but already knows that he needs to trade according to a trading strategy. A vehicle is selected and trading begins directly.
  2. Trading– ends in losses in most cases. A trader trades for several days and the very first trades closed with a stop loss cause uncertainty in his abilities.
  3. It was after the first drawdowns beginner trading psychology fails. Anger at the market arises; many blame anyone other than themselves for failure. Most often, brokers are blamed for moving the chart in order to lose a trader. It is because of this that the myth arose that Forex is a scam and that money is defrauded from gullible beginners.
  4. After some time the cycle repeats.

If you don’t take action, you will continue to move in this vicious circle, losing money. We recommend not to do this, but to immediately begin to act according to a different scheme:

  • Learn the strategy from A to Z. Test it against history over a long period of time, understand how the work is done. You must not only learn the entry signals and the rules for maintaining a position, you also need to understand the logic of its operation.
  • We need to work out the rules of capital management and here the psychology of trading is already necessary. You need to choose a lot size so that the average profit or loss on a transaction does not cause you excessive worry.
  • After the start of trading listen to your feelings. It may turn out that, from a psychological point of view, you feel uncomfortable with this style of trading. For example, the TS involves keeping transactions open for several days, but you are more comfortable trading on M5-M15 and closing transactions within a couple of hours.

Of course, success may not come immediately, but if you work according to this scheme, then with a high degree of probability you will eventually be able to trade consistently with profit.

Conclusion

Trader psychology is more than simple self-control; rather, it is truly the basis for success in Forex. Strategy is just a set of rules, but it depends on psychology whether you can follow these rules. That is why all famous traders agree that the right psychological attitude will ensure 80-90% of success in the market.

We can only agree with this statement and wish you success in trading. The key to success lies within yourself.

Each person is unique and each has his own psychological problems, however, the psychology of a trader is something funny, like a trader in his right mind understands how to trade and how to act in a negative scenario, but as soon as he starts trading, everything is instantly forgotten and it turns out that that it is not the mind that trades, but certain instincts like fear, greed and hope. Now examples of typical situations.

Fear.

1. Trading system says that you need to buy, but the trader does not buy out of fear; this usually happens when a trader receives several losses in a row and he is not psychologically ready to receive another loss.

2. The trader opens a buy deal and at the moment the position becomes slightly negative, the trader quickly closes the position because it seems to him that he was wrong with the direction. In fact, in 95% of cases, having opened a position in any direction, a trader has a floating loss and only after a short time the transaction moves from loss to profit.

3. The trader is in a trade with a profit and it seems to him that the price will roll back and the profit will evaporate and in a hurry closes the position, but the price then did not roll back and went in the right direction and as a result the trader did not make a decent profit..

Greed.

1. Everyone wants to become rich now and immediately and because of this they open a position for too much a large amount and as a result, at the slightest minus, the trader gets nervous and begins to open trades chaotically and eventually loses everything. This is all due to the fact that he is not psychologically ready to trade with such a large amount.

2. The trader at the moment has a solid profit, but does not fix the profit, because he wants more and more, however, the market cannot go in one direction for a long time and begins to turn back, thereby taking away the profit from the greedy trader.

Hope.

When a trader has a losing position open, he will not cover the loss, he will hope that the price will come back and perhaps even average the position. As a rule, most traders lose money precisely because of hope, since the market changes and one trend changes to another, and the trader is not ready to change his position and becomes a hostage to the market.

Some traders advise meditating or breathing exercises, but for me this is not a solution to the problem, because when you come to work you don’t meditate? You just know how and what to do, and trading in the financial market is also work, and if you know how and what to do, there will be no problems! So what to do? You need to go through all the psychological mistakes and treat each problem separately.

Solving the problem of fear.

according to the first example, this is a large number of losses, to avoid this, you need to stop trading with a smaller number of losses, so as not to experience stress. For example, stop trading if there are two or three losses, because maybe the losses were not the trader’s fault, but the market is simply too unpredictable on that day?

according to the second and third examples, this is a problem due to the lack of a clear statement; before entering a trade, he must, as in the proverb, “measure seven times and cut once,” that is, entering a trade must be deliberate, and not spontaneous. Having entered into a trade, a trader must know in advance where he will take profit, and it is best for the take profit to be pre-set in the terminal.

If you have a problem with a clear plan, a simple notebook helps a lot and all you need to do is first write down in the notebook the reason for entering the trade, the mark of take profit and stop loss and only then should you open a deal in the terminal. Then your entry into a trade will not be spontaneous, but rather more deliberate.

Solving the problem of greed.

Trading should be at a comfort level; if you are too nervous, then you should open a position with a smaller volume and then after months, you can gradually increase the trading volume. A person is happy when he is at a level of comfort, so why drive himself to a level of discomfort.

With greed, everything is much simpler and this problem can be solved technically, just set the broker’s leverage at a level at which trading will be comfortable and then the trader, purely technically, will not be able to open a deal with too much leverage.

Solving the problem of hope.

The solution to the problem of hope is simply setting a stop loss. When the stop loss is triggered, the losses are limited and there is nothing more to hope for.

Conclusion.

As you can see, problems can be easily solved with a banal notebook and technical limitations. When a trader makes daily correct actions, then over time it will become a habit and then he will forever forget about the problem of psychology. If a trader just can’t solve his psychological problems, then he should program his system so that the robot trades for him. The robot has no psychology, which means there won’t be any problems.

Personally, in my trading I use an advisor, which controls risks, losses and profits for me. At the end of the video to lift your spirits.