Trading psychology plays a major role in determining trading success. It refers to the emotions, behaviours, and various other aspects of a trader’s character that may impact their trading decisions.
There are many factors influencing the trading psychology of an individual. While greed and fear are said to be key drivers, a lack of patience is often attributed to adverse trading outcomes.
Is patience hard to learn?
Patience is considered a vital skill in the forex trading space. But learning how to master the trait as an investor or trader is said to be incredibly difficult. This is hardly surprising to hear in an industry where attempts to maximise profits on multiple trades often lead to poor decision-making. So how does one integrate patience and calm into their trading strategy to achieve success?
Exercising patience in a volatile trading landscape
Restraint can be exhibited in several ways throughout the lifecycle of a trade.
1. Setting rules
Timing is everything in the financial markets. This is largely due to the challenges that come with trading in a highly volatile trading environment. Where impulsive, split-second decisions steered by unexpected market movements can incur massive capital losses.
But what does this mean for a trader?
For one, sticking to the predetermined rules set by your trading plan is imperative. For example, you’ve planned an entry point in anticipation of a specific price movement. Rather than reaching your entry point, the price suddenly spikes upwards. Instead of sticking to your plan, you panic and enter an order above your entry point. You do this so as not to miss the trade. As a result, you’ve not only gone against the rules of your plan, but you’ve also lost out on potential profit too.
Stay patient for the right opportunities. Remove the emotion from trading by keeping to the predefined rules of your plan. This will help to minimise impulsive trading behaviours that may lead to disappointing trading results.
2. Conquer fear with knowledge
Fear can lead to a variety of trading outcomes, both positive and negative. If mishandled, however, it can result in poor trading decisions rooted in overreaction and panic. Having the ability to be patient before jumping into unplanned trades is key.
Fear often comes about from a lack of understanding of market behaviours, price volatilities or general economic sentiment. Investing one’s time in learning more about trading and the factors that impact it can help a trader develop more confidence and overcome their fear. Knowledge is power after all.
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3. Assess performance periodically
Take the time to assess your trading outcomes to identify any missteps or errors. Re-examine your trades. Evaluate your trading plan and adjust where necessary. Review how you are progressing in terms of learning more about the industry and how to trade. Being mindful of one’s ongoing actions limits emotive behaviours and increases the ability to exhibit patience in the face of volatility and unpredictability.
4. Experiment
Doing is learning. If you’re new to trading, opening a demo account to experiment or test different trading strategies may be beneficial. A demo account offers a simulated trading environment to practice trading using virtual funds. In this way, you’ll have the opportunity to gain more trading experience, which may assist in minimising emotional influences. This will allow you to become more patient when moving to a live trading environment and having to deal with unpredictable market fluctuations.
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5. Accept that you won’t always be in control
Irrespective of how much you know about trading, the forex market is an incredibly volatile space. Erratic price movements (up and down) lead to high-stress situations that may be difficult to navigate. Accepting that not everything is in your control may instead help you become less affected by negative situations.
6. Greed and trading
Greed is a dangerous emotion for a trader to possess. It typically leads to making bad trading psychology decisions with little thought of the risk involved. Greedy traders may choose to invest in a trade that falls outside of their risk tolerance level, incurring potentially large capital losses. Patience is often lost in the pursuit of an ill-timed trade based on greed. A trader can mitigate the impact of greed by setting strict trading rules and not rushing into buying every stock or entering every trade that grabs your attention.
In conclusion
One’s psychology undoubtedly impacts trading in the financial markets, making patience a vital skill to nurture. Exhibiting patience when opening or closing a trade is a vital part of successful trading, best achieved by setting predefined rules for executing trades.
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Disclaimer: This material is for general informational & educational purposes only and should not be considered investment advice or an investment recommendation. T4Trade is not responsible for any data provided by third parties referenced or hyperlinked, in this communication.
