Trading Psychology


What is trading psychology and how it can make you a successful trader?

A successful trader’s mantra is ‘Cut your losses and celebrate your profits’. Sounds easy, doesn’t it? But as any trader will tell you, trading as a business or a career choice is all-consuming. Whether you want to make more money or because it’s your passion, you might find yourself unable to separate emotions from your financial transactions. That’s entirely normal. But a successful trader also knows that it’s never a good idea to let sentiments influence your investment decisions. That’s called Trading psychology

In simpler terms, Trading psychology or Investor psychology refers to the trader’s emotional and mental state that dictate the success or failure of his or her trading actions. Understanding and developing a successful mindset is as important as knowledge, experience or skill in determining the trading success

Any trader in the financial market is exposed to plenty of information that can influence their decision-making abilities. The most prominent emotions that play a role in Investor psychology are fear, greed, regret and hope.

To understand trading psychology and become a successful trader, controlling emotions is vital. Here are some pro-tips to deal with fear, greed, regret and hope, as a trader.

  1. Understand Fear– Fear is a natural reaction to something that we perceive as a threat. In the trading business, risks could occur in many forms – getting bad news about the stocks or the market, placing a trade and realising it’s not going the way you’d hoped, fear of loss. Trading psychology shows that fear is reasonable; however, the way the trader reacts to that is what will determine their success. Understand what you’re afraid of and why; reflect on these issues ahead of time so you can quickly identify and deal with those feelings during trading sessions. Your focus ought to be on moving on and making the trade. Understanding and overcoming fear is what makes successful portfolios.
  2. Overcome Greed – Nobody gets rich in a day. If you find yourself making profits on one day, accept the success of your trade and move on. Hanging on to winning positions too long and trying to get every last tick is a recipe for disaster. Greed tempts a trader to stay in a profitable trade longer than is advisable. Trading Psychologyshows that traders who give in to this emotion do not act rationally. Teach yourself to overcome it. Set rules, define your goals, come up with a game plan and then stick to it; decide based on facts.
  3. Let go of regret– Sometimes a trader regrets placing a bet that didn’t work out, other times there’s regret of not placing one that could have worked out. Regret can be a dangerous emotion as it can lead traders to later make decisions that are not completely thought through, sometimes leading to even more significant losses. Accept that no one can grab all the opportunities in a market. You win some; you lose some. Embrace the rule of Trading psychology that states that there can be no room for regret in a trader’s mind. Once you embrace this mindset, your trading perspective will change.
  4. Lose hope– Yes, that’s right. This is one business where you need to use your intuition. Sometimes when traders incur losses, they stick it out in hopes that the market situation will change and their trade will turn profitable. To be successful in this industry, a trader must have a strategy and the realisation that wishful thinking isn’t the best option. If you keep hoping for things to change, you’re putting your entire investment at risk.

Psychological traits of successful traders

Understanding trading psychology is just the first step in becoming a trader. To become a successful one, here are the qualities that you must cultivate in yourself.

  • – Always keep a clear head.
  • – Be adaptable and know when to change your position
  • – Be disciplined so you can continue the trade no matter what
  • – Learn from your losses
  • – Always be willing to learn
  • – Instead of following the crowd, do what feels right to you
  • – Have a trading game plan and follow it
  • – Trade only what you can bear to lose
  • – Set goals
  • – Know your limits and never over-trade


While it’s essential that as a trader that you should be able to read charts, evaluate stocks and understand the financial reports, it is also vital that you be able to control sentiments that can impact your trade. And even though there’s no way to guarantee that every deal will bring a profit, you can become a successful investor if you understand and embrace the rules of stock market psychology and them implement them in your trading behaviour. Most traders aren’t born with all the traits listed above, but they diligently work on possessing them all.

So, if you too want to become a successful trader, start by taking a personal inventory of what traits you possess and on what you need to work. Discover your strengths and weakness. Asses yourself on several parameters – Are you patient? Are you forward-thinking? Are you adaptable? Do you have the mental toughness required for this career? Do you have the discipline necessary to see things through?

Ask yourself these questions and basis the answers, formulate a plan and work on your trading psychology as that alone will help you improve your game and overall benefit your career.