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Trading Psychology: Traits and Habits of Losing Traders

trading psychology

Understanding trading psychology is the key and foremost thing for you to succeed in the stock market.

So, if discipline annoys you and if you’re impatient then stay away from the share market, especially trading.

Before you just hop into the trading, better make yourself discipline. You need to learn how to remain calm and wait for the right time to enter into a trade.

It is assumed that more than 90% of traders always lose money while trading. So, you need to control your emotions.

While trading, your hard earned money is at stake and so you need to control different emotions. These emotions impact your winning rate and lets you make a winner or loser in the stock market.

Read also:

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Trading psychology involves emotions like greed, fear, doubt, frustration, hope, and excitement. You may feel like you’re in a roller coaster. So, you need to overcome all emotional traits and be more disciplined in day trading.

You won’t get a holy grail for intraday trading. The moment you lose some trades, you are more likely to change your trading setup. Furthermore, you keep switching from stocks to options, options to futures and never able to stand still.

Do you know why emotions make your winning trade into a losing trade?

You know what, most of the time people are correct in their trading decision. It is because as a human, we tend to avoid pain always avoid being wrong.

The moment any trade goes against your expected direction, then you avoid being wrong. Despite cutting your losses quickly, you stay in the trade. That makes your small losses into a big loss.

So, in this post, you’ll come to know how you behave on trading behaviour. Moreover, you will also know the traits and habits of winning traders.

Here are some of the common trading psychology that’s going to affect your trading.

Greed – Trading Psychology

Don’t be greedy while you are doing day trading. I would rather say this is a curse. Greed will let you increase your target profits that eventually your winning trade become a losing trade.

You must follow your trading system that defines your exact entry and exit rules. All you need is to trade with discipline like a robot.

Scenario 1: Hit Target Profit

You place the order as per your trade setup and say you make a profit. That means your target price hit and you make 2 points as profit considering 1:2 as a risk-reward ratio.

Suppose you place a buy order at 38 and kept your initial stop loss at 37 with your target price is at 40. So, you are following a 1:2 risk-reward ratio.

trading psychology greed factor

[Greed – 01]

However, after hitting your target price, the particular stock continues its upward movement. At that moment, you started to feel regret. You may be wondering why I have taken the profits and I must wait for some more time.

So, you decided to change your rules and change the risk-reward ratio to 1:4 instead of 1:2 because of greed.

Scenario 2: Target Profit Too High

Suppose, you place an order at 374. However, this time you have placed your profit target at 382 instead of 378. Moreover, you have kept your SL at 372. In this case, you are going with a 1:4 risk-reward ratio which is too high. Here, you are expecting too much especially for day trading.

trading psychology emotional factor greed

[Greed – 02]

This time also, the price hit 378 though you have placed your profit target at 382. The rate after hit 378 started to fall and hit your Stop Loss which is at 372. This time it never reached your profit target.

So, because of your greed, a winning trade becomes a losing trade. Your greediness is responsible to take the loss instead of taking the profits. Greediness is one of the factors of trading psychology that impact your trading style.

Fear – Fear of Losing Out Trading Psychology

Fear is another emotional psychological factor that makes you take the wrong decision. Let’s see in the chart, where you make mistakes and later you regret.

Scenario 1: Continuous Stop Loss Hit

Suppose you enter into a trade at 577 and kept your SL at 574 and set your target profit is at 583. Your risk-reward ratio is 1:2.

After you buy, it goes up on your expected direction. However, it collapses and not able to hit your target profit as you can see in the chart. Eventually, it hits the stop loss and you exit from the trade with a loss.

trading psychology fear factor

[Fear – 03]

Imagine, you got the second chance and you buy the stock. However, it falls again and you stopped out. Furthermore, you get another chance to re-enter. Unfortunately, it hits the stop loss for the third time.

What you will be thinking after badly hit by stop-loss for three times continuously?

You may be asking yourself that you are in profit if you have followed the 1:1 risk-reward ratio. Even, you’ll feel regret, that why I did not book profit earlier.

Scenario 2: Book Small Profit

Now that, you have witnessed three continuous losses, you have a feeling of fear. This time you will book profit before it reaches your target profit.

trading psychology fear factor

[Fear – 04]

The moment you exit from the trade with a small profit, it eventually continues its upward movement. You missed out the rally because of taking small profits as you can see in the chart no 4.

Your fourth trade is the winning trade and just because of your fear you did not follow your trading rules. So, you cannot predict where the market will go. Instead of that just follow your trade setup.

Suppose, you trade 10 times and for instance, you lose 5 trades and win 5 trades with 1:2 risk-reward ratio. So, your trade setup win rate is 50%. However, you will be in profit at the end of the day.

Here is how a 50% win rate makes you a winning trader?

Imagine, in your first 5 trades, stop loss get hits and as your risk-reward ratio is 1:2 so you lose out 1 point.

Hence, your total loss in the first 5 trades is 5 points.

However, in your next 5 trades are in profits and you make 2 points in each trade.

So, your total profits in the next 5 trades are 10 points.

Here is the calculation part:

Total Profits (10) – Total Loss (5) = Actual Profits (5)

At the end of the day, you will still be in profits. All you need is to remain disciplined and don’t be scared and trade like a machine.

Instead of taking small profits, stay in the trade and just follow your trading rules.

Trading Psychology – Hope

Hope is one of the worst trading psychology factors that eventually wipe out all your capital. It will drain out all your profits in just a single trade.

Scenario 1: Touches Target Profit After Stop Loss Hit

As you can see in the below chart, the price started to move upward just after hitting your stop loss. This time you feel like being cheated.

You may be wondering why this happened with you. So, what you will do in the next trade if the same things happened.


trading psychology hope factor

[Hope – 05]

So, you have decided to put a deep stop loss instead of following the 1:2 risk-reward ratio. I have seen people not managing their risk and eventually wipe out all cash.

Scenario 2: Deep Stop Loss

So, in this case, you have decided to put a deep stop loss in the hope that it will not hit your SL. However, it started to fall the moment you buy.

You thought that it will reverse its direction and move to your expected direction. However, it continues its southward direction.

After some time you just keep moving your stop loss farther from one level to another. Unfortunately, it still breaking all levels.

trading psychology hope factor

[Hope – 06]

So, instead of taking 1 point as stop loss, you’re making a huge loss of 14 points in the hope that it will recover. Hence, don’t hope and just follow your trading rules.

Never tweak your winning trade setup and stick to it. At the end of the day, you’ll be rewarded.

Key Takeaways

You might be facing some common emotional mistakes, especially in intraday trading. Here are some of them.

Revenge Trading – You push yourself hard and rush into new trades after making a few losses. So, you want to revenge the market and win back all your losses in just a single trade.

The moment you rush into a trade, you started to lose more. It is because you may not follow your trade setup and the trade fails again.

As I mentioned earlier, there is no room for hope, greed, and fear in the stock market.

Next one is, you constantly changing your trading system after experiencing some losses. You keep experimenting with the indicators or changing entry and exit rules.

You never stick to the system long enough so that it started to works for you. Instead of jumping from one trade setup to another, just stick to one for at least 3 months. I am pretty much sure, that you’ll be rewarded after some time.

Losing traders always tend to focus on their account balance. So, instead of focussing on your account balance, just focus and believe your trading strategies.

Never blame others for your loss. Losing traders always do the same and blame others instead of following their trade setup.

Winning traders always take action when they found a high probability signal. So, you also need to follow your trading signal and not just carried away emotionally. Never, let your fear, greed, and hope to control your decision.

Take responsibilities on your losses and keep learning from your mistakes. No matter what happens, just stick to your golden rules. Loss is also a part of the stock market. So, accept this fact and move on.

I tried to cover some of the traits and habits of losing traders.

So, if are just one of them, then started to follow your trading strategies from today itself.

How you have overcome these day trading traits that make you a successful trader?

Either way, do comment below with your views and suggestion.

If you like this post, then do share it on your social networks like Facebook, Twitter, and others.


Published on: May 10, 2019

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