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Psychology is a key element of financial trading, and how you perceive and react to your trading can have a major impact on your success. In this module we go through some elements of trading psychology and identify a few common mistakes to watch out for.
Before you open your first trade, there's potential to make a couple of common mistakes. And as these are easily controllable, there's no reason to be caught out.
It's essential to be well prepared. You can find a whole host of information and learning resources out there, in the form of books, educational courses, trading conferences and, of course, the Internet.
Despite this, far too many people rush in without performing the necessary due diligence on whether it’s a prudent move.
The financial markets can be particularly unforgiving of naivety and especially punishing of over-confidence. Take the time to understand the markets you are interested in, how they work, and how they have been behaving.
When it comes to being fully prepared, however, the most important thing to comprehend is yourself. Be sure to understand how you work, what you want to achieve and what you need to do to reach your objective.
In our developing a trading plan module we talk about what type of a trader you are, and how you can better understand the strategies that might suit you best.
You may be surprised how many people only see the upside of the trades they place. Who hasn’t sat down and calculated the potential for profit, and perhaps even come up with ways to spend their future winnings?
It is critical to always be aware that you may lose. It is real money you are dealing with − your money − and there is always the chance that you could lose it.
If you prepare well, and if you stick to your trading plan, you should be more confident that you will have success. But as with anything, overconfidence can lead to errors, and so it is always advisable to carefully manage your expectations. Don’t assume you can sit back and just let the profits roll in.
Trading isn’t child’s play – and if it was, where would be the challenge? Treat the financial markets with respect, and factor in a few inevitable disappointments while you’re getting to grips with the techniques of trading.