The market is crashing. It is volatile and uncertain. Many traders are focusing on how to take advantage of the market in such exceptional circumstances. But I recommend taking this opportunity to take a hard look at trading psychology.
Swinging prices lead to highly-charged emotions in the market. There is no better time to remind yourself of the core role of psychology in trading financial markets. Be careful not to follow the herd or to respond blindly to the volatility. Instead, take time to reflect on the psychology of the market and your personal trading mindset. I’m not an expert on trading psychology. But I have benefited from many discussions about the mindset that propels trading performance. So in this crash course. I ‘ll not reinvent the wheel. Instead, I’ll help you navigate the vast expert resources out there from the perspective of a retail trader. Let’s go
Trader's Psychology Versus Market Psychology
In this crash course, we’ll look at two dimensions of psychology relevant to traders.
1. Trader’s psychology
2. Market psychology
The first is your trading psychology. This aspect involves a personal undertaking to know and improve yourself. It concerns: Handling your emotions. Being disciplined. Recognizing your biases. Designing a trading plan that is conducive for psychological resilience.
These aspects will help you become a better trader and lay the foundation for understanding market psychology. We will spend most of our time here.
The second is market psychology, which we will explore in the last section. This aspect will aid you in analyzing the market.
This is the realm of behavioral finance. Think of market psychology as an extension of a trader’s psychology. Appreciating the common pitfalls of an individual market participant will better equip you to understand market psychology.
OVERVIEW
We will cover the following topics in this crash course.
Section1: Introduction to Trading Psychology
Section2:Discipline-How To Control Your Emotions While Trading
Section3:Dealing With Extreme Outcomes
Section4:Common Stumbling Blocks
Section5:Practical Steps
Section6:Recommended Resources
Section7:Market Psychology
SECTION1:THE NEED FOR TRADING PSYCHOLOGY
Isn’t trading about entry strategies? Okay, risk management is essential as well. But psychology? Veteran traders will not doubt the link between psychology and trading performance.But new traders might not think that studying psychology is something worth their time. So here are a few resources to change your mind.
1. Read this short introduction from Investopedia to learn the importance of trading psychology.
2. Working through this course by the CME Group for a rounded understanding of trading psychology.
3. If you want to reinforce the ideas above, skim through this article as well. It presents a comprehensive view of trading psychology fundamentals.
Well let’s finish here , we will go ahead to Section2 and Section3 next week. See you next week!