How Psychology Messes With Your Trading

There is no trader out there who hasn’t made a bad trade because emotions boiled over.

Two specific behaviors stand out.

First, never sticking to a single coherent strategy. Many traders keep trying different strategies and ideas tools until they bust the account. It can happen early into your trading career. But it’s a problem if you still do it years after starting trading.

The good news? This problem has a “relatively” easy fix. Your main issue isn't trading psychology. It's the lack of a solid strategy, a.k.a. your personal edge in the market. You can fix that by diving into charts, books, and learning from experienced traders.

The second way you can wreck your account is by letting your emotions call the shots in your trades. You might have a winning strategy and even have many consecutive profitable days (or months!). Then, out of the blue, you do something inexplicable. Possibly repeatedly. Before you know it, you're facing double digit drawdowns. If this sounds like you, Trading Psychology might help you figure out what's going on.

There's actually a third category of traders—successful ones, who know exactly where their limits are. But they are not reading this post, they’re checking the charts to lock in their next profitable trade.

Why Emotions Make a Mess of Your Trading

Dealing with emotions in trading is like walking through a minefield.

It's easy to spot when you're very upset, but most of the time, emotions are sneaky. Trading involves money, wild price swings, endlessly conflicting expectations and reality. It’s a perfect recipe for an emotional rollercoaster.

Being constantly glued to the news feed and other traders’ updates during trading hours practically guarantees that emotions are going to mess with your head.

The tragedy with emotions is that they cloud your judgment. Want examples? "It's just past my SL, but I think the tide will turn any minute now". Or "It just hit my target, but I think it's going parabolic now." These are your emotions messing with your rational thinking. Most likely, these scenarios aren't in your trading plan, neither do they usually play out in real life.

The Market Takes Advantage of You

The financial internet is overflowing with influencers, self-proclaimed gurus, and endless opinions. You can find someone endorsing any wild stock idea or strategy you can possibly dream up. But, let's face it, most of it is pure fiction.

Most of this online trading community are just trying to sell you their agenda because they can't profit with trading. Instead, they exploit your emotions. Stories like "This guy turned 5K into 200K in three months" grab everyone’s attention. The spark of a subtle excitement you feel when seeing a post like this is the very same impulse that makes you do stupid trades ignoring your strategy and rules.

The bottom line is, besides the market itself, the whole internet is after your attention and money. You're always just one step away from making a wrong decision that benefits someone else instead of you.

Getting a handle on your emotions in trading is your defence against all this noise. It should be a daily habit, just like washing your hands, because your mind literally gets dirty too when you engage with people and the internet. Neglecting your mental hygiene is like skipping washing—it might seem okay at first, but eventually it stinks.

Your Mind is Your Edge

Experienced traders will tell you that to be profitable in the market, you need an edge. Without one, you'll end up on the losing side of the statistics.

Having a unique strategy is one part of the equation, but having a clear mind is equally crucial. No matter how fast your car is, you won't win in the long term if your head is a mess. After a few successful races, overconfidence can lead to costly mistakes.

So, think of your trading toolkit as a double-edged sword—your strategy and your mindset.

Having a sound mind is a must if you want to consistently make money in the market. Your mind is your edge.