Importance of Psychology in Trading:
Trading or even investing is not only about technical analysis, fundamental analysis or market study but it is also hugely depended on our psychology. Why would I say that?
You may do all the preparation or study you want before the trading session or before investing, if you do not execute your plan to perfection then all of it goes to waste.
- Can you hold on to your winners with patience and cut your losses in time?
- Can you stay calm during your drawdowns?
- Will you avoid revenge trading after a loss?
- Can you stop yourself from overtrading?
- Can you stick to you plan and execute it without any hesitation or second thought?
- Can you stay calm when price reaches near your stop loss and/or refrain from revising your SL?
- Can you control your greed, fear, anxiety, and emotions while trading?
- Can you manage you risk?
Your mind control or psychology comes into picture while trading (or investing) and executing your plan as per your study or analysis.:
Different Aspects of Trading
I’d say 15% is your preparation/study or analysis of the markets, 30% knowledge of markets and experience that comes from trading/investing, and 40% is trading psychology or in simple terms execution.
Market is so brutal that it demands you to be equally good at all the aspects mentioned above, only then you can taste success! One slight slip or being lethargic or complacent and you are bound to see loss.
You may do paper trading for years, but if you do not develop that discipline, and control when trading with real money, that entire practise is useless. Trading with real money will get to many people’s emotions and nerves and hence their psychology goes for a toss and errors keep happening. May be that is the reason why 90% of traders fail to make money.
People may say learn from your mistakes, but making mistakes in markets may be very costly!
Did I scare you? Well, you should be!
So you may ask, how do I get over all this and become a better trader/investor?
One has to keep refining every aspect of trading and get better. One way to improve your trading psychology is through practising meditation!
Meditation helps you develop focus, become more observant, be mindful, be aware of the situation, develops patience, stay calm during difficult times, helps you control your emotions, and take better decisions.
How to practice meditation?
Watch a good video on meditation and practise it daily starting with 10mins and gradually increasing the duration.
The simplest way is to sit with your legs crossed, back straight and hands rested on your knees as shown in the below image. You may also sit in a chain to meditate. The point is to be relaxed and not force yourself while meditating. Sit with your eyes closed and focus on your breath going all the way in through your nostrils into your lungs and all the way out. That’s it!
Your mind may wander here and there in the beginning, thoughts may come in, or you may get distracted by some external noise or itching sensation etc, but try to bring back your attention/focus to breathing every time, be aware of your breathing.
By doing so you are trying to exercise your brain, and train it to focus on only one thing (i.e. breathing), being aware and control your brain from distractions. All these qualities are the key ingredients while trading as well! #TradingPsychology sorted!
Meditation not only helps in trading but also helps in becoming a better version of yourself in general. So, say yes to meditation. 🙂