Developing your Trading Psychology
For those that haven’t come across Trading Psychology yet, this is something you need to know if you are to be successful at trading. It would take a whole book to give you an intro to it so I recommend reading a couple of books… Trading in the Zone by Mark Douglas, anything by Van Tharp and Brett Steenbarger
For those that do know about Trading Psychology, you’ll remember that having the right Trading Psychology is 80% towards your success towards financial trading. Some people think it’s a lot higher than this.. Van Tharp, the well known trading coach thinks it’s all about trading psychology.
Anyway, it took me a long time to understand trading psychology and even a longer time to implement the changes required to become a successful trader.
When you start trading and lose money, you feel sick to the stomach no matter how small a loss you take. You will also have periods of losses which will knock your confidence. Then then periods of winning when you become overconfident. Literally every way you turn, there is something to bite you and you need to be able to navigate through all of this to be successful.
One of the first steps towards developing my own trading psychology was to change the relationship I had to money. Money is fundamental to all our lives and the majority of us will have a massive negative reaction if we lose any of it. Unfortunately with trading, losses are part of the game and you have to get your mindset to understand that. Changing your relationship to money took sometime but two things which helped were
a) Compartmentalising your Trading pot. You got to separate your trading money with the money you use to live (food, rent, bills etc). This money that will sit in your trading account needs to be money that is spare and that you’re not dependent on.. if it’s a windfall through some share win or some matured savings account, that helps disassociate it with the money you need to live. Also, you need to have enough in the trading pot to be able to trade with.. I’d say around £5000 UK pounds minimum.
b) Visualisation – you have to keep telling yourself that trading incurs losses that you cannot avoid. You really have to believe this not only because it’s true but because if you don’t believe this, then success in trading can’t become a reality for you.
So I believe these are the first two steps towards developing your trading psychology if you haven’t started. Try them, give it some time and let me know how you get on.
I’m planning to write a book about my personal trading psychology journey at some point so watch this space.
