Without a doubt, our mind is our most powerful weapon when trading. Therefore you need to understand the way trader’s psychology can affects the market. Market is mostly driven by traders psychology, when good news is release, the market goes up and vice versa. Our strategies only contribute 10% to our success, the rest come from our psychology.

If every trader is given the same info and data so why are most of the traders still losing money?

The answer lies in how individual’s mind perceives and interpret the data. Remember that trading is a game where we are competing against people who are more experienced than us. We may all be using the same trading system but what makes them better than us is their mindset. For example Steve and Alan use the same trading strategies, same broker, same platform and look at the same chart.

The different between the both is that Steve didn’t fluster when the price go against him while Alan closes his position. The price reversed after Alan closes his position. Alan then complains that, “Damn it, I know I’m right about this trade!” The result is that Steve earns and Alan loses.

Reason is that Steve has the conviction to believe in his analysis. Steve believes that the price is only a temporary retracement but Alan thinks that the price is going to reverse. Why bother to square off early when you had already fixed where your stop loss was. Why bother to enter the trade if you know you are going to close it the next moment the price move against you. You might avoid some potential losses but you won’t be able to profit from the market this way.

Command and Conquer

Generally, traders lose money due to greed and fear. Although you won’t be able to remove them completely, you will have to learn to control them. Greed makes us do things that we would not do normally while fear prevent us from doing things that are risky. Both emotions are essential in our trading but overdose of each will definitely destroy us.

The main fear a trader has is losing money, it is normal because no people would want to lose money. Imagine you might make a losing trade previously, and you will be too fearful to enter another trade even though it might turn out to be a winning one.

Being too greedy can leads to overtrading or random trading. When you see the price move strongly in a certain direction, you tend to “jump” into the market. Often you are buying high or selling low. Greed can also cause us to hold our position over a longer period of time even though we have reached our profit target.

Final Notes

Our mind is the most powerful weapon when trading. We shouldn’t become the slaves of our emotion but rather conquer them. Therefore by understanding and learning to control your emotion will hone you into a better trader.