Successful trading psychology

A successful trader should not only know how to trade the market, but also understand trading psychology. The inner state is a big driver of behavior that can dramatically affect your actions.

Trading evokes strong feelings in traders, whether they win or lose. Emotions can make a great deal of difference to the decisions you make, so you need to learn how to control them. Whether you are irritable or angry today, it is important to remain calm and purposeful during the trading day.

We prepared this article with useful tips so that you can trade with ease to avoid negative emotions.  

What is trading psychology?

Trading psychology refers to your approach to the stock market and transactions, how you think about them and how you relate to them. Your emotional state while trading the market affects your behavior, which in turn has implications for the effectiveness of your trades.

Most traders spend a lot of time and energy worrying about which way the market will go and whether they will make a profit or a loss, leading to a great deal of stress and poor buying and selling decisions. Some emotions and feelings are helpful, while nervousness, fear and greed, can be detrimental to trading success.

What emotions influence trading psychology

Such emotions as fear and greed can have negative consequences, encouraging traders to act impulsively. Fear causes the trader to close a position prematurely. This emotion can easily turn into greed, and convince the investor to hold losing positions for a long time for fear of realizing a profit.


Greed can make you stay in the trade when you are planning to leave. Instead of making a little more profit, you run the risk of being left with big losses. Such deals can end badly just when you thought you were going to win.

People act greedily when the expected rewards far exceed the time and costs to be invested. In the pursuit of easy victories, we become overconfident, which can also lead to sloppy trading and big losses.

Close the bad deal as quickly as possible, take your losses and move on. Learn to control yourself and not give in to these emotions: define your clear goals, think through a plan and then stick to it.


Fear has another impact. You want to trade deliberately, using logic and reason, but strong emotions can make you postpone a trade. Fear can ruin your trading by preventing you from making a successful purchase. It makes decision-making avoidance and excessive risk aversion.

When the market starts to wobble, traders' lack of confidence increases and causes them to resort to hasty and ill-considered decisions. Investors can exit a trade prematurely without trusting their technical analysis, thereby missing out on a big money-making opportunity.

This is common during bear markets and is characterized by significant sell-offs due to panic selling.

Better understanding of trading psychology

Emotions are an integral part of trading. Although we plan our deals diligently, the market does not always meet our expectations. The successful trader realizes that once he has entered the trade, he has no control over the outcome. Instead of worrying about profit or loss, he works hard to fine-tune his trading strategy.

You will make trades based on emotion, but revisiting each one can help you learn not to repeat your mistakes. Simply being aware of your condition can be the first step towards improving your decision-making skills. When you know how you feel and understand how it affects trading, you will be better prepared to make the right decision.

You cannot get rid of your emotions while trading by 100%, but you can always analyze your actions and avoid repeating them in future trades.

Why is stock market psychology important?

Whether you want to make more money through trading or because it is your passion, you may find yourself unable to separate your emotions from your financial transactions, which is quite normal. The importance of psychology in the stock market is often underestimated, but identifying and managing emotional factors can be extremely helpful to a trader.

When a trader understands psychology, it is important to manage emotions accordingly. While some feelings are helpful, negative ones usually have a greater impact on investment decisions.

Transactions incur a variety of losses, whether it is one dollar or fifty. But when a loss comes to a thousand dollars, a trader may have a panic that cannot always be controlled. Try to analyze your actions and steps more often. Most importantly, understand yourself. Learn new strategies, research the market and stock up on the right tools for good decisions.

4 common fears in trading

The four main fears experienced by traders have different directions and origins. Knowing how to classify them correctly is a huge step towards solving the problem that prevents proper and reasonable deals being struck.

Fear №1 – Pride

Always being ahead of others, making significant profits and taking pride in the work done is a good skill for every trader. But sometimes this emotion can backfire and even become problematic. We cannot control an ever-changing market, and getting less is not that much of a loss.

Fear №2 – Happiness

Happiness is a pleasant emotion that can also affect fear. If you are used to staying in one place all the time and not trying to get more, you might miss out on some great opportunities. And when disappointment is commonplace for you, it may never come to fruition.

Fear №3 – Anger

Often anger can cause you to lose your trades without making a profit. It is important to realize that we cannot control the market, but that observing its fluctuations and being able to analyze them is our best option.

Fear №4 – Impatience

You can lose profits and exit a trade prematurely by not trusting your technical analysis. This emotion can have a devastating effect on your ability to make decisions and will not allow you to be very successful in the marketplace.

Steps to master trade psychology skills

1. Practice with a demo account

A demo account is one important element for learning how to trade. Most brokers offer this tool for free, allowing novice traders to understand the market and learn how to trade. This account is similar to a regular one, the main difference being that the money in it is not real. Such an account has access to all the information that traders see in a regular one, and allows them to invest without risking capital.

2. Every loss is a new learning experience

A good trader achieves success through the ability to accept defeat as graciously as the victory. Unlike traders who give up after losing a few times, the successful trader uses their losses to their advantage. He analyzes trading activity to understand mistakes and to apply this knowledge to his future trades. This stock market psychology does not guarantee consistent gains, but it helps to remove anxiety and stress about the outcome of one's trades.

3. Observe the habits of successful traders

If you are starting out on your trading journey, take the information offered by others, analyze it for yourself, make it your own and master it. Famous traders are constantly looking for new strategies, doing a lot of research, analyzing stocks and continuing to evolve. Watch what they do and try to find something unique for yourself.

4. Start a journal

It is important for traders to assess their progress and identify points that can be improved. A performance journal is a great way to analyze your actions and change something about your trading process. This habit allows the trader to keep track of all trades and assess which methods worked and which failed. You may find gaps in your strategy, by addressing which, you will pave the way for a more successful deal.

5. Choose your favorite strategies and stick to them

Do your research, put yourself to the test, check your trading knowledge before you start as a trader. Yes, you can learn a lot from traders who have achieved success, but designing your own trading strategy is an important step. Consider the latest market trends to decide how and what you want to trade instead of asking others or believing random forecasts and rumors.

6. Learn how to read useful news

Before investing in stocks, technology or companies, traders should spend sufficient time researching and analyzing opportunities. They need to keep up to date with the news, study the charts, read trade magazines and do industry analysis.

7. Use the stock check tool

Analyzing trends and patterns in your stock trades can be a good way to improve profits as well as learning more about how the market functions. Using various digital and online tools can help you learn more about the companies you are interested in, and improve your trading technique.

Trading psychology mistakes and how to avoid them

Mistake №1 – Overconfidence

Overconfidence forces people to place too much trust in their trading skills, taking grandiose views of their abilities. This prejudice causes traders to take risky positions in the market because they cannot afford to fail. Overconfidence can cost a lot more money, lead to inefficiency or even destroy your capital. A little reasonable doubt and caution never hurt.

Mistake №2 – Adrift

You have to listen to others and take cues, but it's just as important to have a ready-made trading plan and a sound strategy. Avoid buying stocks during a frenzy or selling them in a panic when the price is going down, as this can sometimes have fatal consequences.

Mistake №3 – Expectation of perfection

In trading, losing money is inevitable, and even the best traders will lose profits on many occasions. Losses can have a devastating impact on everyone, and the ability to deal with it correctly will lead to better results. Accept losses in every trade you make and ensure that the potential reward is worth taking the risk of failure.

Mistake №4 – Overreaching

The negative aspect of trading is excessive awareness and righteousness of traders. Learn new information and read research reports. If possible, attend conferences and communicate with mentors. Markets change, so always try to find new sources of information that will give you useful skills.

Mistake №5 – Paralysis

To make a decision, you have to take a risk. Trading can progress very quickly and you may not have time to scrutinize each investment carefully. Don't be afraid to start something new, control your emotions and make decisions with confidence.

Exercises to improve understanding of trade psychology

1 - Clear your mind

Start your day with a calm mind: meditate, go for a walk or go to the gym. Your thoughts will be clear and there will be no irritants around to influence your decision-making. Your mind will be reset and set up for good and profitable trading.

2 - Visualize your deals

Different market situations can evoke a range of emotions that have a major impact on the development of trading. Try to imagine yourself in several scenarios and observe the emotions that each situation provokes in you. You may be surprised to discover how your physiology reacts during times of stress.

3 - Define your trading objectives

Setting clear goals and moving confidently towards them is an important element of trading psychology. You will find it difficult to motivate yourself in times of stress when you have no idea what you are doing it for.

4 - Make your deals real

For many people, trading on the internet does not seem real, because there is no actual money on hand. You can remind yourself of earning money in many ways. Some traders put paper money on the table before they start, while others transfer their winnings to cheque accounts. Find your method of motivation and keep trading!

5 - Keep a journal

You should consistently document your trading activity, including goals, transaction results, plan, thoughts and emotions. By taking notes, you will become more aware of your habits and prejudices, which will allow you to avoid making big mistakes.

6 - Create your own trading algorithm

Based on experience and sober thinking, create your trading algorithm and run it for automatic trading so that no stress affects further decisions.

Summing up

Yes, it is important for a trader to be able to read charts, evaluate stocks and understand financial reports, as well as controlling emotions which can affect trading. There is no guarantee that every trade will be profitable, because the market changes and not always in our favor.

To become a successful investor, adopt the rules of market psychology and incorporate them into your trading behavior. To avoid mistakes and emotional trading problems, trust the algorithmic actions of trading robots.