A comprehensive guide to fixing trading psychology

There is more to trading than analisis teknikal. An often overlooked component that has a significant on trading outcomes is trading psychology. You see, even the most technically skilled traders can fail due to poor psychological discipline or focus. So mastering your emotions and fixing your trading psychology is key increasing the likelihood of potential success.

Trading psychology issues that impacting traders

Understanding what trading psychology actually is, is key to grasping its significance on trading decisions.

Ultimately, trading psychology refers to the feelings and emotions that drive trading behaviour and decisions. It’s the emotional factors that impact a trader’s tolerance for risk, ability to stay calm, and the overall decision-making process. The most common factors influencing a trader’s psychology include:

Anxiety and fear

The risk of loss can emotionally cripple a trader, rendering them incapable of making rational decisions.

Greed and arrogance

Like fear and anxiety, greed and arrogance can also lead to reckless trading behaviour. Decisions lacking rational and/or objectivity.

Overconfidence and ego

An overconfident trader can quickly become blinded by their own inflated ego, often times leading to adverse trading outcomes.

Impatience and restlessness

The risk of overtrading increases exponentially when decisions are based on the fear of missing out.

Having an awareness of your emotional shortcomings are a massive step in the right direction for improving your trade performance and nurturing an effective trading psychology.

Personality types and how they influence trading

Not two individuals are the same. They display inherently different personality traits, some of which cultivate a robust psychology and others which are detrimental to trading outcomes.

Positive traits like patience, discipline, and resilience help traders wait for the right opportunities, stick to their trading plans, and recover from losses without letting emotions dictate future decisions.

On the other hand, negative traits such as impulsiveness, overconfidence, and excessive risk aversion can lead to poor analysis, disregarding risk, and missing out on profibable opportunities due to fear or emotional reactions. A balanced approach is necessary to leverage positive traits while minimising the influence of negative ones.

So, how can one establish their specific personality type?

• For one, keeping a trading journal and recording behaviours associated to particular trades is a great way to gain insights into the emotional and psychological factors that influence trading outcomes.
• Reviewing past trades offers a way to identify emotional patterns that influence decisions.
• Finally, consider taking a personality test. One of the most popular worldwide is the Myers-Briggs Type Indicator (MBTI). Others include the ‘16 Personalities Test’, ‘Clifton Strengths Finder’, ‘Birkman Method’, and others.

Roadmap your trading goals to fix trading psychology

One of the core components of trading effectively is to build a trading plan that sets out with specificity the objectives you wish to achieve, the rules by which you will trade, the amount of time you’ll commit to trading, and the level of risk you’re willing to incur.

More specifically, the trading plan should identify the risk management tools you intend on adopting, be this stop-loss orders, take-profit orders, trailing stops, etc. You should include position sizing too, in other words, how much capital you’re willing to invest in one position without putting your entire capital at risk.

Calendarise to the best of your ability the days and time that you’ll dedicate to trading related learning, regardless of how skilled a trader you are. Remember, this plan should to the best of your ability be devoid of emotions and grounded in research and logic instead. In this way, you provide yourself with a tool that will keep you focused and more disciplined.

Finally, know that this plan can be adjusted if the need arises. This will be largely dependent on changing market conditions, goals, or budget. Otherwise, stick to it as strictly as possible to mitigate impulsive decisions based on fleeting emotions.

Invest in continuous learning for trading psychology

Another way to fix trading psychology strategically is to commit to some form of ongoing education. What does this look like though?

• A reputable broker is likely to offer a comprehensive range of educational resources to help boost your skills and widen your scope of information. For most brokers, like IronFX, this includes blogs, e-books, courses, seminars, webinars, and podcasts.
• Consider joining community forums to engage with experienced traders who can provide you with useful insights to help you handle your emotions more effectively.
• Stay up to date with current news and economic releases. Consider using an Economic Calendar for real-time updates and coverage on financial events and economic indicators to make informed decisions.
• Signing up for demo trading account is another way for both beginner and advanced traders to learn more about trading. Registering with IronFX for example will give you access to a demo trading account through which you can learn how to use the MetaTrader 4 (MT4) platform for trading multiple assets. Using MT4, you can open and close positions and assess outcomes. Using virtual funds, you can execute trades without the risk of losing your capital, giving you the peace of mind to engage in learning with a clear head. Traders can also use MetaTrader 4 to learn more about technical and fundamental analysis, essential for successful trading.

Becoming a research expert to fix trading psychology

Knowing hoe to conduct all forms of analysis not only helps you make objective trading decisions, it also mitigates uncertaintly which can often lead to heightened emotional responses.  As we’ve already mentioned in this article, knowing how to conduct technical and analisis fundamental are a crucial part of this process. Having a strong foundation in research and analysis provides the assurance that data is driving trading decisions and not feelings. This in turn means you’re less likely to panic or over-stress in the face of market moving events.

Using a demo trading account is certainly a a great way to learn how to use both forms of analysis, especially technical analysis which the MT4 platform is renowned for. In fact, MetaTrader 4’s technical analysis tools comprise of 30 built-in indicators, 2k+ free custom indicators and 700 paid ones, allowing you to analyse the market of any level of complexity. It also offers 24 analytical objects: lines, channels, the Gann and Fibonacci tools, shapes and arrows, which can be manually applied to both charts and indicator windows.

Integrating mindfulness practices into everyday trading

Alongside points 1 to 5 listed herein, building emotional resilience includes integrating habits into daily routines. This could be simply stepping away from the screen to clear your mind. It also involves identifying your behavioural triggers to know what to avoid in the future. Consider using automated tools as well. MT4 is largely sought after for its algorithmic trading, which sees Expert Advisors (trading robots) exit large volumes of trades based on pre-determined entry and exit conditions. Automated trading removes the emotion from the process, allowing you to remain calm and collected.

Trading with IronFX

Becoming an IronFX trader means gaining access to a high-quality, flexible trading experience, multiple asset classes, an extensive range of account types, and fast trade execution. Through this international broker with clients across the globe, you’ll also be able to enjoy seamless withdrawals and deposits, and market access via the MetaTrader 4 (MT4) trading platform, arguably one of the world’s most popular trading systems amongst global traders. The IronFX Academy also offers an abundant source of educational resources to boost one’s skills and acquire fundamental trading insights.

Disclaimer: This information is not considered as investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced, or hyperlinked, in this communication.

Disclaimer: This information is not considered as investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced, or hyperlinked, in this communication.