Trading psychology refers to a trader’s mindset during their time on the markets. It can determine the extent to which they succeed in securing a profit or it can provide an explanation as to why a trader incurred heavy losses.
There are many skills required for traders to be successful in the financial markets—the ability to understand the complexities of the Forex market in general and the ability to determine the direction of the market’s trend are two of them. But neither of these technical skills are as important as a trader’s mindset: the ability to contain emotion, think quickly, and exercise discipline—what we might call trading psychology. The psychological aspect of trading is extremely important. Traders often have to think fast and make quick decisions, darting in and out of stocks on short notice. To accomplish this, they need a certain presence of mind. They also, by extension, need discipline, so they will stick with previously established trading plans and know when to book profits and losses. Emotions simply can’t get in the way.
The field of active trading is a challenging, fast-paced environment with nearly infinite possibilities and pitfalls. The odds are seemingly stacked against active traders in the marketplace, with studies suggesting that upwards of 80% consistently lose money and only 20% achieve predictable, long-term profitability.
So why the attraction to active trading as a profession?
The answer lies in the benefits that success in the marketplace can provide to prosperous traders. Financial independence, self-empowerment and an escape from an unsatisfying career are a few perks enjoyed by those who beat the odds and grasp the brass ring.
Perhaps the most compelling evidence that trading success is possible are the statistics surrounding the trading practices of profitable traders. This relationship illustrates that successful traders have found a method of conducting trade that creates an “edge” that can be applied repeatedly to the marketplace. Through consistent and calculated action, these traders are able to regularly prosper.