Trading psychology ‘the most important thing’ for a trader

Consistent profits are the aim for any trader, but, as Lee Sandford MSTA CFTe tells IG, the background for this to happen is for a retail trader to adopt the correct trading psychology.

Traders, Lee Sandford says, can be vulnerable to early failure because of a lack of discipline, which often leads to the trader running out of funds. To combat this there has to be an early adoption of a routine that forms the basis of a consistent practice.   

Highlighting three main influences on consistency, Sandford talks about rules around the technical aspects of trading, as well as the mental and biological aspects that are needed.

Technical consistency includes going into a trade with an aim or a target. Meeting a target will either trigger an exit of a position or, if a trend is in place, an understanding of how to benefit from that market and to keep the profits flowing. 

The mental aspects, Sandford says, circle around early successes or failures. There is a temptation for the unseasoned retail trader to expect that things will always go well after a period of success, and that there is no hope when things do not turn out as planned. It is at these two extremes of emotion when mental consistency tends to go awry. Linked to this are the biological aspects, where a trader must learn how the body reacts to the stresses of winning or losing, by over celebrating a win, or getting caught up in a depression following a loss. 

To this last point Sandford looks at the different character types and suggests that you find out where you fit into the accepted psychological profiles. Knowing this will help you understand what your responses will be to a list of all possible outcomes.

Trading psychology

Become a better trader by working through free interactive courses on IG Academy.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Find articles by analysts

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.