Many of the most successful traders of today will tell you that the key to making money in trading is being able to take a loss. Experts in trading psychology and traders all know that the market is unpredictable and probably never will be. In the world of trading, it's normal to lose money, and even the best traders know that it's unavoidable. So, let's look at some things you should know as a trader, like how to take a loss well and use it for the greater good of your trading world.
According to the psychology of trading, when a trader loses, he tends to try to do everything perfectly. Many traders think that a good day of trading is always one in which they make money. Psychologists who study trading tell us this is not true. A trader should think of a good day as one in which they have done a lot of research, planned ahead with discipline and focus, and carried out the plan to its fullest. Yes, good days will lead to profits in the long run if a trader has learned how to accept losses and work through them with a well-thought-out plan.
Experts in trading psychology say that it's important to focus on what you can control instead of things you can't. This is because the art of trading in an unpredictable market changes so much from day to day. If you only look at the short term, you can't expect to be able to control your trading profits. So, think about what you can control about what you do.
You do have the power to decide which days are good and which are bad. You can control this by doing a lot of research on the strategies you use in your trading experiences. By learning how to research your chosen trading strategies, you can control how many good and bad trading days you have. This will help you start making money, which is the goal of every trader.
Experts in trading psychology say that it's important to be realistic when trading instead of trying to be perfect. Perfectionist traders see a loss as a sign of failure and will obsess over it, putting all of their attention on it. Realistic traders know that the market is hard to predict, and they know that taking a loss is just part of the art. The most important thing to remember about trading psychology is how to limit your losses without becoming obsessed with them. In the world of trading psychology, it is often seen that traders who obsess over their losses have a hard time getting over them and end up losing more money.
Experts in trading psychology have put together three basic ways to stop losses that work well. These plans of action are:
- Based on price
- Based on Indicators
- Based on time
Price-based stops are usually used when neither of the other two stops has worked. To make this work, you will have to make some assumptions about the trade and find a low point in that market. Then, you will set your trade entries near your points. This way, if the hypothesis fails, you won't lose too much money.
Having time-based stops is a way to use your time. Set a time limit for how long you'll hold on to a certain number of points. If you haven't made the profit you want in that amount of time, you should stop the trade. Even if the price stop limit hasn't been reached, you should stop if you're using it correctly.
The Indicator-based stop uses signs from the market. As a trader, you should be familiar with these indicators and use them a lot in your trading. Check out things like volume, gains, losses, and new highs and lows.
Experts in trading psychology say that setting stops and going over them in your mind is a good way to use your mind to make sure you stick to them.
