Top Trading Psychology Issues & How To Beat Them
Trading psychology is more important than most traders realize, this video provides some tips that might help you overcome some common challenges.
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We have an interesting question here from a new subscriber saying that they are having a really tough time with their psychology.
It's a follow up to a question we did yesterday as well about recency bias. And they're saying that the recent market moves have been very frustrating, and they're losing money due to the psychology not being in the right place, and the asking, what are the common psychological issues that traders deal with and how they can beat them?
I think trading psychology is by far one of the most important aspects of your trading. You can have all the analytical and technical and fundamental skills in the world, and you can still lose money if your psychology isn't in tune.
So for me, there's really three big issues that traders usually struggle with. They are FOMO or fear of missing out, you also have recency bias that we discussed yesterday. And then there's also trading without a process or confidence.
The first one, FOMO, is something I think even the very best of traders struggle with. You know exactly what this is, you know, you see that very big move up or that tanking move lower. You see all the dollar signs running past you. You know as the second stick by and the pips stick by suddenly you just jump in, because you don't wanna miss out on a big move. And what happens when you jump in, it's like a sick joke, right?
The moment you jump in trading it to the downside, the market starts to take a breather, and it moves against you and moves against you some more and and moves against you so more and eventually you just liquidate the position, because you're frustrated with the loss. And the cherry on top is the moment when you liquidate the position. It eventually moves in the right direction.
So, you jump in again because you don't wanna again miss out. You don't have that fear of missing out on the, eventually moving in your direction. And it starts to go down a little bit in your direction and you breathe that sigh of relief saying, "Okay, finally."
You know, it's going in my direction only to see it move out again, and you end up taking another loss and the battle just rages on and on and on. This is obviously only a one example of how FOMO can affect your trading. But it does play out with many different scenarios all, you know coming down to the same thing.
The best way to sort out this type of challenges just by making a deliberate decision not to get sucked into any trades that you don't understand. If you are late, rather be late and miss out on that late entry as opposed to be sorry, by taking a trade that you're not sure of and then ending up having a loser. As I said, it's something every trader struggles with and will only get better if you make a conscious effort to root it out in your thinking, you know, so checklist for entries is something that can help you with and just having that deliberate pattern of not jumping in unless there's a clear tradable catalyst for the market to be moving.
The second common issue of course, is a lack of confidence or process.
Always have the fundamentals backing your trade direction. And the third psychological issue is recency bias, which we did discuss in more detail yesterday. This is when you fixate on the most recent things that has happened in your trading account, and you blow them out of proportion.
So, just because you've had five trades in a row, you know, let's say winning trades in a row. It doesn't mean that that fifth winner, or that fifth trade is gonna be a winner as well. But because you have that euphoria from the five most recent winners, you have that recency bias that plays with your psychology, and you end up taking bad trades because you think, you know, this is gonna be another winner.
A trader that has 1000 trades under his belt will act very differently towards a losing or winning streak compared to a trader that has only 10 or 20 or 50 trades under his belt. So, it really comes down to experience with something like recency bias.
So, I hope that helps with your question about the top psychological issues and some ways that you can overcome them. Any other questions on these please just let us know.
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If you find this content helpful, you’ll love Forex Source.
There’s a link below were you can learn more about it
https://bit.ly/2HFykNd
----
We interpret and explain price moves in real-time, 24 hours a day. Our team of analysts produce text, video and audio commentary.
You understand the markets and trade with confidence. Learn more at our website here: https://bit.ly/2HFykNd
-----
We have an interesting question here from a new subscriber saying that they are having a really tough time with their psychology.
It's a follow up to a question we did yesterday as well about recency bias. And they're saying that the recent market moves have been very frustrating, and they're losing money due to the psychology not being in the right place, and the asking, what are the common psychological issues that traders deal with and how they can beat them?
I think trading psychology is by far one of the most important aspects of your trading. You can have all the analytical and technical and fundamental skills in the world, and you can still lose money if your psychology isn't in tune.
So for me, there's really three big issues that traders usually struggle with. They are FOMO or fear of missing out, you also have recency bias that we discussed yesterday. And then there's also trading without a process or confidence.
The first one, FOMO, is something I think even the very best of traders struggle with. You know exactly what this is, you know, you see that very big move up or that tanking move lower. You see all the dollar signs running past you. You know as the second stick by and the pips stick by suddenly you just jump in, because you don't wanna miss out on a big move. And what happens when you jump in, it's like a sick joke, right?
The moment you jump in trading it to the downside, the market starts to take a breather, and it moves against you and moves against you some more and and moves against you so more and eventually you just liquidate the position, because you're frustrated with the loss. And the cherry on top is the moment when you liquidate the position. It eventually moves in the right direction.
So, you jump in again because you don't wanna again miss out. You don't have that fear of missing out on the, eventually moving in your direction. And it starts to go down a little bit in your direction and you breathe that sigh of relief saying, "Okay, finally."
You know, it's going in my direction only to see it move out again, and you end up taking another loss and the battle just rages on and on and on. This is obviously only a one example of how FOMO can affect your trading. But it does play out with many different scenarios all, you know coming down to the same thing.
The best way to sort out this type of challenges just by making a deliberate decision not to get sucked into any trades that you don't understand. If you are late, rather be late and miss out on that late entry as opposed to be sorry, by taking a trade that you're not sure of and then ending up having a loser. As I said, it's something every trader struggles with and will only get better if you make a conscious effort to root it out in your thinking, you know, so checklist for entries is something that can help you with and just having that deliberate pattern of not jumping in unless there's a clear tradable catalyst for the market to be moving.
The second common issue of course, is a lack of confidence or process.
Always have the fundamentals backing your trade direction. And the third psychological issue is recency bias, which we did discuss in more detail yesterday. This is when you fixate on the most recent things that has happened in your trading account, and you blow them out of proportion.
So, just because you've had five trades in a row, you know, let's say winning trades in a row. It doesn't mean that that fifth winner, or that fifth trade is gonna be a winner as well. But because you have that euphoria from the five most recent winners, you have that recency bias that plays with your psychology, and you end up taking bad trades because you think, you know, this is gonna be another winner.
A trader that has 1000 trades under his belt will act very differently towards a losing or winning streak compared to a trader that has only 10 or 20 or 50 trades under his belt. So, it really comes down to experience with something like recency bias.
So, I hope that helps with your question about the top psychological issues and some ways that you can overcome them. Any other questions on these please just let us know.
-----
If you find this content helpful, you’ll love Forex Source.
There’s a link below were you can learn more about it
https://bit.ly/2HFykNd
