Trader Psychology Managing to predetermine the direction that will take the course in a day? Probably empowered the most difficult to acquire. Indeed the predictive side, it is equally important, is far from the first loss factor for the trader. In order are: psychology and behavioral deviations, then the money and risk management and finally the quality of analysis …Today we will focus on the number 1 problem faced by traders, ie themselves;)
Mal manage emotions is the main factor of losing traders
Many beginners think that with a good method, they will win every time. Usually they are wrong. Front of the screen, a trader knows a number of psychological bias that led him to take this or that decision. As any experienced trader or he can deny experience frustration after a loss. What will determine if this trader is good or not is whether that frustration will be felt in its next actions.
How manifest cognitive bias in the actions of traders? There are many configurations, but there are a few fairly typical scenarios we will now explore in detail.
We find the same phenomenon in the bettor and the player, besides the trader at the bottom in its activities is simply a gambler.
Subject to risk aversion, the trader will be required to ensure its gains by reducing them. This is the principle of “a bird in hand is worth two in the bush”. It is preferred in this case win often but not much. It is preferred to make small gains that take the risk to earn large sums. This is completely contrary to the rule of “let it run its gains.”
Here is a feature found only in trading. The trader, a position loss, is subject to a deep discomfort, and it simply because it does not want to lose. So as not to lose, devoid of any logic and only based on a hope, it will keep its open position until he understands that there is nothing to save and must be cut. At this time there will cash a heavy loss he might have spared himself. This principle is contrary to the basic principle of trading is “quickly cut his losses.”
A rule dominates in trading, you should know that nothing is guaranteed. Yet often we forget that, after several successes the trader feels confident. Taking too much insurance, he thinks always right and do not think I can go wrong in its analysis. It believes that its ability to analyze dominates market efficiency. Obviously, he is wrong but the consequence of this arrogance is that it will be necessary to increase its exposure and thus the risk because he always wins. But when that luck is more, he confronts the consequences of heavy losses because of heavy capital.
How to fight against his emotions?
The goal is not to fight against itself but mainly to stay lucid and to step back. Despite the desire to succeed, the ability to separate the emotional side of the operational side comes with experience and time.However, some methods are proven. The brutal use of a trading plan is really a very rewarding experience because it forces despite the emotions the trader to comply with written rules.
For people who really struggle to fight against the evils mentioned above, it will be interesting to write the rules of the trading plan on a sheet and read them before and during stances. After a few weeks under regime will we manage to make the idea of letting her run gains, quickly cut his losses and stay humble.
Furthermore, through hard work and taking on itself, we manage to get out. Another method is to keep a trading journal, where you describe each trade, first the technical details (losses / gains, products, …) and comments on your objective felt during your positions, your mistakes ,. .. You can do especially on the forex forum in the ” trading journal “. A force to do this you will come gradually to correct your orders cognitive problems. Note that you can hold this newspaper in the appropriate section of the forum;)
This chapter is short, but it did not mean useless. Behavioral finance, including Daniel Kahneman is the father, is an area of fairly recent study. Knowing now objectively all cognitive biases that affect you will be able to effectively combat your bad reactions.