Top 10 Trading Psychology Lessons

Time flies fast, huh? Before we end 2012 though, let’s look back at some of my favorite trading psychology lessons for the year.

1. Know when to stop.

Off days happen even to the best of us so don’t beat yourself up too much! As I have outlined in one of my articles before, there are instances when it’s better to just sit on the sidelines.

Sure, good traders are supposed to be on their toes at all times, ready to pounce on the opportunity to make profits. But keep in mind that successful traders are patient and know when to stay out of the markets.

2. Forget that perfect trade.

I could never fault someone who is striving for perfection. But if being an extreme perfectionist gets you edgy and keeps you from executing any trade, you have a problem.

You can plan a trade systematically only to end up losing money because an unforeseen event invalidates the trade setup you so thought was soooo perfect and your trade slaps you in the face and goes against you.

Loosen up a little! Rather than looking for that “perfect” setup, strive instead for a profitable one. I guarantee that you’ll feel better.

3. Go outside your comfort zone!

Are you already comfortable trading a particular pair? Do you feel that you’ve already mastered your trading system? Perhaps it’s time that you trade outside of your comfort zone.

Don’t worry! You don’t have to do anything drastic like immediately quadrupling your position sizes. It can be as simple as taking the next valid trade despite a string of losses or trading during a different trading session.

Give it a shot. As Cyclopip learned in his EUR/CHF win, one of his best trades of the year, waiting weeks for a trade is definitely uncomfortable but it was all worth it! Don’t they say, “Life begins at the end of your comfort zone?” Don’t be afraid to explore other opportunities out there.

4. Don’t be distracted.

If you’re trading within the confines of your own home, don’t let the comfort that your bed provides or the exciting plot of a TV show make you forget that trading is just like real work: You reap what you sow!

We all deal with distractions, I know. That’s why I shared 4 tips to help you limit them and let you keep your focus on what really matters, your trading.

5. Avoid the trading seesaw.

One week your account is up, the next, it goes back on the red. How do you avoid the trading seesaw?

This posed a tough challenge for my friend Happy Pip when she struggled with her short-term trades towards the latter half of the year. Once she was able to review her trades and pinpoint her mistakes, she was soon able to get back on track and maintain a positive trading mindset.

It might be difficult, but it’s definitely possible. It will take a lot of effort, emotional, resilience, and above all, FOCUS.

6. Keep on learning!

In trading, as with any other craft, the learning shouldn’t stop. If you want to stay on top of your game, you need to constantly work on your existing skills and be ready to adjust to new market information.

Earlier this year, I gave tips on how to grow your psychological capital and some ways on how to expand your trading skills. These suggestions can come in handy when there are changes in market environment, such as the usual surge in liquidity at the end of summer, when you might need to switch trading strategies or have a different mindset to withstand the possible effects of these changes.

7. Take a break when you have to.

Every now and then, you might encounter losing streaks or large drawdowns that could take a toll on your mental and physical well-being. When you find yourself experiencing a trading burnout, always remember that it’s okay to take a break and unwind once in a while.

Another way to overcome a trading burnout is to find a “trading buddy” who can help you review your trades, identify your common mistakes, and come up with suggestions on correcting those errors.

Aside from that, you can also try to recall how you felt when you first started trading in order to renew enthusiasm for the craft. Pip Surfer swears by this rule and it sure gets him stoked about his next trades!

8. Outline your goals with a mission-vision statement.

Having a clear and concise statement containing your trading goals and expectations is a crucial part of achieving success in the field. As I’ve mentioned in the past, you should treat trading like a business because you dedicate a lot of time and resources to this venture. As such, it’s important to have a mission-vision statement that can guide your trading decisions.

9. Work on sustaining changes.

If some of these lessons are new to you and you’re having trouble implementing the necessary adjustments, don’t fret! Sustaining changes is much easier said than done so I wrote an article giving tips on how you can consistently apply these tweaks.

You probably noticed that most of the FX-men have been including their trading resolutions in their quarterly reviews. If you’re thinking of regularly tweaking your trading approach every now and then as well, just remember that you should be ready for changes, tackle one change at a time, and don’t let your guard down.

10. Don’t give up on your trading resolutions!

Last but certainly not least, keep your eyes on the prize and don’t ever give up on your resolutions. I know that some people tend to relapse on their diet or workout resolutions halfway through the year but this shouldn’t be the case when it comes to trading.

Make a conscious and concentrated effort to implement these resolutions in order to successfully turn them into trading habits. Consistently updating your trade journal or seeking support and guidance from a trading buddy can provide you enough motivation to improve and achieve your goals.

There you have it, folks! I hope you had a good trading run in 2012 and I’m looking forward to hearing about the lessons you’ve learned, as well as your trading resolutions for the upcoming year. Happy 2013!