A Trio of Psychological Tips for New Traders
- By FXT
- October 18, 2022
- FXT Analysis
Trading can bring tremendous rewards – both economic and emotional, to savvy investors who are active on the market. It can also be a fraught, nerve-racking experience, even for sophisticated trading veterans, let alone novices who are new to the game.
Maintaining a calm, rational mindset is one of the key to successful trading, because at the end of the day it all depends on human decision-making. For this reason it can be extremely helpful for traders to take lessons and cues from the field of modern psychology, so that they can think and act more effectively while dealing with the hurly-burly of the market uncertainty.
Here is a list of three psychological tips than can help you to improve you trading performance:
1.Let go of the past
No one’s perfect, and it’s impossible for even the savviest of traders to avoid committing errors. While it’s important to take stock of the situation and take draw lessons when mistakes are made, it’s also critical for traders not to become demoralised or even depressed. Despondency has the potential to cloud judgement and negatively affect future performance.
Conversely, it’s also important not to dwell excessively on past successes, which can also undermine judgement by making traders too optimistic, egotistical or incautious.
It’s helpful to move on from past performance, and remain firmly focused on the present when trading. By concentrating your mental energy on current circumstances, you can make the best decisions on how to best respond to the market.
Each trade is a new one, and it’s important to approach each situation afresh.
2. Know and accept that markets are mercurial
It’s the firm conclusion of some of the world’s leading economists that markets are by their very nature random, acting in defiance of any possible forecast or prediction.
While the precise nuances of this opinion are disputed, it’s important to keep in mind that markets can be extremely random and unpredictable environments, as they are comprised of human beings who, as the economist John Maynard Keynes said, are driven by animal spirits.
By realising, and also accepting, the fact that markets are random entities that defy precise forecasts, traders can achieve a more fatalistic attitude that enables them to remain more stoic and unemotional in the face of occasional losses.
This can in turn help them to implement more rational decision-making, by maintaining a state of equanimity and calm even when the chips are down.
3. Plan your exits from positions
While it can be euphoric for traders to see their positions on the upswing, in many situations it’s also important for them to make plans in advance to make an exit from those positions as winners.
As stated above, markets are random and unpredictable places, and a winning trade can rapidly transform into a loss-making position if held for too long, or if the timing of exits is botched.
One helpful way to achieve this is to put in place a take-profit trigger, which automatically gives the order to sell whenever the last traded price hits a designated profit point.
This is an extremely easy thing to do in the modern era, particularly following the development of innovative trading platforms such as the FXT Navigator, that provide you with precision tools to know and fully control your risk-reward ratios.