One of the most important trading fundamentals is to pull in your emotions and explode your profits.
So what is it that separates the successful from those who fail? If you ask anybody who has studied trading for any period of time, they will answer ‘psychology’. Essentially, your mental ability to manage losses and profits and the good and the bad times in trading, manage risk, to not become too greedy and many others are all encapsulated under the heading of ‘trading psychology’.
Often when people talk about the importance of psychology, the need to be as unemotional in your decision making as you can be is frequently mentioned. Decisions are required often when trading and a fair percentage of the decisions that are required will be difficult. Humans are naturally inclined to break the time tested trading rules and this is why your psychology and decision making is such a vital part of your success. Successful traders have great internal control and discipline to overcome the natural tendencies.
Trading the share market is like running a business and anyone who has run a business successfully will tell you that emotions should have little place in your decision making. The fundamentals of trading successfully are all about decision making, although because of money and our natural instincts, many people cannot remove their emotions from their decision making process, sufficiently.
This is essential however. If your emotions have a great influence on your decisions, the chances are you will break the trading fundamentals and time tested trading rules. You will be inclined to not cut your losses and not let your profits run, for example.
To develop a trading plan and to then follow it requires some time tested character traits that lead to success in any endeavour such as commitment and discipline. These attributes will help you eliminate as much as possible the influence of your emotions over your decision making. Developing a trading plan will also greatly assist as it will provide you something tangible to base your decisions on. Without a trading plan, you have nothing to base your decisions on except how you feel, which is largely governed by your emotions at the time.
Another key consideration when preparing yourself to make your own trading decisions is where you are going to make your decisions. For example, are you going to be trading from work, or in the home office? Where are you going to be more focused? This is important because you need to be able to reduce the effects of any possible distractions, but also eliminate the influence of how you are feeling. This would be especially relevant if making your decisions at home where distractions could potentially be numerous. It is important that you are relaxed and able to focus when you sit down to review your share holdings and to identify potential purchases.
One final thought about trading fundamentals and your emotions. If you buy something and it doesn’t move in the direction you were hoping, don’t get upset. Understand that it is a normal part of trading. Getting upset about it is not going to achieve anything, especially moving the share price back in your favor. If anything, it will only cloud your judgement when making future trading decisions and potentially do you more harm than good.
Article Source: Articles Engine
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