10 Principles of Psychology You Can Use to Improve Your Trading

Trading carries a much higher risk than other commonly used investing strategies, such as long-term investments in bonds, ETFs, mutual funds, or stocks. If you have a low risk tolerance or are trading with funds you can't afford to lose, you shouldn't be trading. There is no one strategy that will ensure success in every trade however, having the proper knowledge and trading strategy can reduce risk.

improve your tradingA good trading strategy is worthless if you don't have a plan to manage your money. William O'neill, founder of Investor's Business Daily once said “The whole secret to winning in the stock market is to lose the least amount possible when you're not right.” You won't be around long if you are not properly managing your trading capital. A properly executed stop-loss will minimize losses and help preserve capital so you can stay around long enough to have some winning trades that cover your losses plus yield a profit. New traders often fail to succeed because among other things, they fail to have an effective strategy to minimize the risk of loss. 

Minimizing your risk of loss involves calculating the optimal position size for your particular trade and is dependent upon trading capital available and where you place your stop loss.  There are many position size calculators available on the internet. That’s why using a broker is preferable so you have the maximum amount of trading data available. Another option is to use a comprehensive trading solution that offers opportunities like webinars, a trading knowledge database, and online demo trading accounts. 

Make a trading plan– Before the market opens every trader should have a comprehensive trading plan to minimize the impact emotions can have on successful trading. A trading plan serves not just as guidance but also reduces the stress of the trader. It can help the trader minimize making any kind of impulsive decisions.

Be sure before taking the final step– Before finalizing your decision, take a moment and think about your planned transaction and re-evaluate it. Compare it with your trading plan and ensure it matches your investing goals. Make sure that the decisions are not driven emotionally but are well-founded trading decisions. This can help to minimize unnecessary risk or poorly executed trades.

Keep it simple– the most common mistake which all the new traders commit are that they try to encompass everything into their trade. They try to learn everything all at once and try to make use of all the complex trading tools and strategies from the beginning. Doing this will only lead to confusion and dilemma, something that can lead to poor decision making under pressure. Always go step by step, learn two to three things which are simple and then add new strategies only when you are comfortable implementing and fully understand what's in your trading toolbox. Never try to learn all the trading strategies in one go because that will only lead to confusion.

Keep realistic expectations– It is realistic to have an expectation to make money over the long-term however, losses are to be expected. Nothing is stagnant if there are a few winning opportunities be prepared for some loss as well. Online trading is very unpredictable and emotions such as greed, fear, and doubt can have devastating consequences on trading results. 

Have patience– A wrong foot forward and all the money would vanish in less than second. Be very careful in selecting the opportunities. Learn to be patient with your own self and also with the market. A patient trader would analyze the market carefully and take a decision after going through the pros and cons of going ahead with it and then make a final choice. If the decision is taken in haste the trader might lose a lot of money.


Always expect the unexpected– A business environment is dynamic in nature ie it is never constant and keeps on changing. The online market is also very unpredictable. It most of the time fools the traders. Always see both the sides of the market condition before settling for a decision.

Keep the loss to a minimum– Make sure to keep the loss small. More the loss, riskier it is for the trader. Always make it a point to keep the profits more than the loss. The main goal of any business is to make profits and no trader would want to suffer loss.

Accept the outcomes– In online trading, a trader cannot blame the consequence of a decision on any other person. The trader must learn to take responsibility for their own decisions and actions. Traders often have a habit of blaming the market situation or banks for their failure.

Don't become overconfident– A trader must always be confident about his methods and abilities but they must also keep in mind that the final outcome is not in their hands. The market gives indications to the traders it is the responsibility of the traders to understand it and to act accordingly.

A trader is always responsible for the decisions he makes. It is in the hands of the trader whether to enter or exit from the trade. It is the strategy of the trader which is the most important part of online trading.  

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