There is a lot of focus on trading strategies, indicators and technical analysis as you start your trading career. And this is certainly necessary. However, as your career progresses, you’ll likely find that analytics and strategy ultimately take care of themselves as you find your niche in the market. Trading psychology, on the other hand, can require a significant amount of work for most traders.
At Tradingsim, this goes to the heart of what we do.
Our mission is to provide a safe learning environment for you not only to learn how the market works technically, but also to build your confidence. Over time, as you trade in a simulated environment and test your results, this will also boost your trading psychology performance.
Many traders do not realize that much of the psychology of trading is a byproduct of practice. Some will argue that simulated trading is not as realistic and therefore cannot prepare you for the emotional side of trading. This is only true if you haven’t learned to trust a proven strategy.
For this reason, we can’t think of a better place to start your commercial-minded journey than in a simulator. However, there are many nuances in the psychology of trading that you will have to face along the way. Let’s take a look at some of the most important ones.
EMOTIONS OF THE STOCK MARKET
The stock market is full of emotions. You can probably guess the most common emotions of the stock market, such as fear and greed. But, did you know that the stock market can arouse a lot of emotions?
After all, that’s all the stock market really is: human emotions on display. The sooner you realize this, the better the trader is likely to be. It is the market that tests and preys on your emotions. You should learn to master them sooner or later.
STOCK MARKET EMOTIONAL CYCLE
True, stock market emotions range from fear, despair, hope, anxiety, and even euphoria. It is so common to experience these emotions that you can actually expect them to occur in a predictable cycle. We call it the emotional cycle of the stock market.
Think of it this way: let’s all start with optimism, optimism that we’re going to make a lot of money in the market. Over time we could have trades in our favor and make a lot of money. However, if we are not in tune with the normal market price cycle, we can carry our profits all the way through, leading us to despair.
The goal, of course, is to become a trader who learns to manage his emotions and make wise decisions. Instead of hope, fear and greed, he becomes a process-oriented trader who can trust his judgment on the market.
STOCK MARKET ANXIETY
Anxiety is a fairly normal emotion for many people these days. With all the fear of covid and war and famine coming to the newsfeed, it’s no wonder we’re all a bunch of anxious people. Unfortunately, the stock market can also create many anxious people.
Stock market anxiety usually stems from a lack of knowledge and understanding. The less you know about something, the riskier it becomes. And for most new traders, this lack of knowledge can lead to anxiety in trading.
“In fact, it is often because of our need to make money and our overconfidence that we pursue shortcuts in our learning processes as traders and take too many risks. This leads to volatility of P/L and losses, which in turn triggers our nervousness, tension, stress, fear and worry.”
Dr. Brett Steenbarger, Ph.D.
There are a few factors that cause anxiety about the stock market. In the list below, consider whether any of these things apply to you. It could help you learn how to control your emotions in the stock market if you can eliminate some of these problems.
- Are you trading because you need to make money?
- Are you risking all your money plus margin on a single trade?
- Do you have any idea what the result of your strategy is?
- Is the stock you’re trading very volatile?
- Do you like to share your winning trades and not your losing trades?
- Are you putting undue pressure on yourself to get rich quickly?
If you answered yes to any of these questions, you might get stressed. Day trading anxiety can come from many different angles. We do not recommend trading full-time until you have proven that you can replace your income as a consistent trader. For the most part, this will take years. Similarly, learning to be disciplined with your position size, your strategy, and your ego can take time.
