After the challenging year that was 2020, I’m sure most of you are eager to start this year on a fresh slate. Here are some trading psychology lessons we’ve learned.
As traders, this is a good time to sit back and reflect on the year that was. Go through your trading journal and look at each and every one of your trades.
1. Keep close tabs on regular headlines
If there’s anything we’ve learned from the previous year, it’s that fundamentals and market sentiment are not solely driven by economic updates.With COVID-19 updates hogging the spotlight, it’s no surprise that market participants and price action took cues mostly from how nations are keeping coronavirus cases in check and vaccine developments.
The upcoming year might be no different as the pandemic has significant repercussions on the global economic and political landscape, as well as monetary policy and stimulus efforts.
Don’t limit yourself to the forex calendar if you’re trading the news or basing your setups mostly on fundamental analysis. Make sure to incorporate how regular non-economic headlines can affect overall risk appetite and longer-term market trends.
2. Your everyday tasks will prepare you for not-so-everyday scenarios
Trading strong, one-directional moves during unprecedented market situations is not an excuse to shoot from the hip.
Sure, it’s easy to double up or go all-in when your friends and even teenage YouTubers are making 4x holding their $TSLAs and their alts every couple of weeks.
But if you want to maximize your returns and protect your (hopefully growing) capital at the same time, you’ll need to have solid trading habits to fall back on in times of fear and greed.
3. Expand your trading skill set
With constantly changing market dynamics, it’s always best to have a few more tricks up your sleeve on top of your tried-and-tested strategies.
Read a new trading book, follow a blogger with a different trading style, or read up on other trading strategies.Checking out the BabyPips.com forums is also a good place to start if you’re looking for new trading-related content.
What’s important is that you expand your trading skill set. Remember, to be a successful trader, you must constantly learn, adapt, and improve.
You never know when the market environment will call for new trading methods!
4. It’s better to be profitable than to be right
Remember that there are countless factors that can invalidate even your best fundamental and technical analyses.
Maybe you missed a major headline or a key chart inflection point.
Maybe you’re trading against more or bigger traders who feel differently than you do about an asset.
Or maybe a world leader suddenly tweeted “Asset X should not have done so and so. CANCEL ASSET X!!!” and your previous analyses are blown.
At the end of the day, you’re a trader and not an analyst or an investor. It’s your job to trade what you see and not what you think.
5. Take breaks if you need to
But with everything that went on in the past year, the importance of mental health cannot be overstated.
As a trader, feeling burned out might make you prone to making rash decisions that could dig a deeper hole for your account and trading confidence.
Take a moment to do a self-check before you start trading and be mindful of negative emotions or stress factors that could impact your decision-making.
Remind yourself that there’s nothing wrong with needing a break or having to sit on the sidelines. Use this time to regain focus, so you’re better equipped to deal with whatever the market throws at you.
So no matter what your bottom line looked at the end of 2020, use the lessons you’ve learned and the experience you’ve gained to psych yourself up for a fresh start this 2021.
How about you? What trading lessons have you learned in the past year?