Trading Psychology

Hope and Fear

Do you ever wonder what separates the best traders from the rest? Maybe they have a secret indicator or maybe they are just that much smarter than everyone? Wrong. The truth is most successful traders have better control of their emotions and understand trading psychology.

Jesse Livermore said,

“The speculator's chief enemies are always boring from within. It is inseparable from human nature to hope and to fear.”

And it is no doubt that with the stock market the average trader does a lot of hoping and fearing.

Money naturally brings out human emotion and for traders this affects our performance. If you find yourself not cutting your losses quickly, or selling winning trades too soon your emotions are most likely getting the best of you.

“The successful trader has to fight these two deep-seated instincts. He has to reverse what you might call his natural impulses. Instead of hoping he must fear; instead of fearing he must hope. He must fear that his loss may develop into a much bigger loss, and hope that his profit may become a big profit.”

If you want to improve your performance it is important to create a sound trading system with rules for buying, selling and portfolio management to keep your trading decisions objective and non-emotional. 

Somethings you can do to help improve your trading psychology are:

• Treat trading like a business

  • If you treat trading like a hobby, it will pay like a hobby. Businesses require work and focus.

• Think like a casino

  • The casino might not win on every hand dealt or spin of the wheel, but they have an edge and in the long run will always come out ahead. Taking a loss is ok.

• Take full responsibility

  • You are the only one responsible for your trading, don’t blindly copy other traders you see on Twitter. You need to own each trade and make it your own.

• Develop a trading plan

  • Create rules for buying and selling stocks as well as overall portfolio management.

Doing these things will dramatically increase your trading performance.

“The speculator's chief enemies are always boring from within. It is inseparable from human nature to hope and to fear. In speculation when the market goes against you you hope that every day will be the last day and you lose more than you should had you not listened to hope to the same ally that is so potent a success-bringer to empire builders and pioneers, big and little. And when the market goes your way you become fearful that the next day will take away your profit, and you get out too soon. Fear keeps you from making as much money as you ought to. The successful trader has to fight these two deep-seated instincts. He has to reverse what you might call his natural impulses. Instead of hoping he must fear; instead of fearing he must hope. He must fear that his loss may develop into a much bigger loss, and hope that his profit may become a big profit. It is absolutely wrong to gamble in stocks the way the average man does.”