Trading psychology and attitude is one of the key aspects of being successful.
Your success when trading is 15% your strategy, 15% your money management skills, the rest is you!
Attitude and Confidence When Trading
You can have the best strategies and techniques but if you don’t believe that you will achieve great success then you are probably right. You need to have good self-esteem, a great attitude and confidence in what you are doing, but you also have to enjoy it. If you find trading really grating and boring or if you are overcome with great fear and your heartbeat goes over 130 bpm every time you trade then these are strong indicators that you are not on the right track. When you start getting anxious and nervous it’s best to take a step back from the computer and do something that puts you back in the happy, relaxed and confident state of mind. Make yourself a cup of tea, go for a walk, meditate, listen to your favourite music – whatever works for you. When trading whilst in an emotionally unstable state you’re only going to dig yourself a deeper hole as you are more likely to make bad decisions driven by panic. Very few of us are naturally confident and have a great self-belief, the rest of us can obtain it by raising our awareness and learning more about ourselves and our behaviour.
It is very important that you feel positive and successful when trading. Ideally you should expect most of your trades to end in the money, however also accept that there will be losses and don’t let them throw you off your course. Focus on the end result – ending the day in profit. If you’re into the law of attraction or positive wishful thinking or imaginary creative sort of thing then great – focus on that. If not, then look at it this way – if you don’t expect most if not all of your trades to finish in-the-money and feel negative about it, then you will probably have all sorts of negative emotions like fear, anger and greed and they can affect your judgement when trading.
You can build up your confidence by practicing on a demo account (most binary options brokers provide you with one after you make a deposit). When you practice a strategy over and over and see great success, that will build up your confidence and belief in the system and yourself that will assist you when trading for real. Practising is also vital because repetition will train you to recognise situations that ended well for you. If a strategy doesn’t work for you, find a different one, every trader is different and different things work for different people. If you’re not comfortable with the strategy you’re using you’re probably not going to be very successful at it anyway. It is also a good idea to analyze the emotions that overcome you in different situations when trading, that way you can start to understand what made you make those exact decisions and how to avoid them in the future.
Emotions When Trading
It is commonly said that an emotional trader is not a particularly good one. Previously success has been linked to discipline and controlling your emotions however that opinion is starting to shift. Recent studies show that most of our decisions are done unconsciously. Now it is thought that only one or two consecutive decisions are “disciplined” and the rest happen rather unconsciously which isn’t necessarily a bad thing . Your brain tends to be a bit lazy and is constantly looking for the quickest and most effective ways to make decisions. When it comes to trading your brain will remember previous situations and provide you with an intuitive feeling that should be seen as assistive data. It is then up to you to analyze that data and decide whether to act on it or not.
Trading Psychology & Loss Aversion
In economics and decision theory, loss aversion refers to people’s tendency to strongly prefer avoiding losses to acquiring gains. Some studies suggest that losses are twice as powerful, psychologically, as gains. Loss aversion was first demonstrated by Amos Tversky and Daniel Kahneman.
For example: they conducted a test in the BBC Horizon documentary – How You Really Make Decisions. A group of people were given a decision – they could have a £5 note or toss a coin to receive £20 or nothing. Most of them chose the risk free offering of £5. Another group was given £20 note and a decision to give £15 back and keep the £5 risk free or toss a coin to keep the £20 or lose it all. Most people in that group chose to toss the coin which is rather strange as both of them were given the same risk free option of receiving £5. Scientists have also conducted a similar study on monkeys, introducing them to money and giving them the option of purchasing fruit. The monkeys in the experiment also showed signs of being loss averse.
If loss aversion is something that we have developed through hundreds of millions of years of evolution can we really change our behaviour? Probably not, but knowing is half the battle. You can start to analyze your actions and act accordingly when loss aversion kicks in. I know that from my experience – the first week I started properly trading I saw huge success, I made a profit of nearly €4000 and I was over the moon. On the sixth day I made some colossal errors – I had three trades on at the same time and all of them were ending out. If I would’ve left it I would’ve still been in profit over €3500 but I decided to cover my losses and double up all the trades. I did that multiple times and lost all of my profit. After that had happened I started to wonder why I had done that, why risk all of my profits for an extra €500? I didn’t understand my behaviour as I’ve never been a gambler. I had no idea what made me act so irrationally. After learning about loss aversion it started to make sense – when this was happening it felt like I was on autopilot, there was no thought process going on asking myself – is this really a good idea? Since then I am constantly trying to learn more about the psychology and attitude behind trading. You can easily avoid making mistakes like that. What I have found useful is writing my trading limits, goals and personal notes on a piece of paper and having it next to my laptop. That way if I find myself taking unnecessary risks I have it in my eyesight reminding me what I should be doing to be on the right track.
The Key to Success
Believe you can do it. That sounds rather simple, let’s look at it this way – when you are determined to succeed at something you will find a way eventually. There are a lot of people out there who are making a lot of money trading and they are not that different from you. What comes to trading binary options you don’t need to have a degree in economics or some sort of higher education to succeed. You need a good strategy, sound money management skills and a great attitude and you must expect success, know that it will happen. There’s more than enough tips and strategies and information on trading binary options out there – hundreds if not thousands of bloggers, education available through your broker, books and videos. In my opinion getting in the right state of mind is the most important. If you believe you can do it and your will is powerful enough you are going to be successful.