psychology of trading page 4

Everybody makes mistakes sometimes - that's absolutely normal. Mistakes are especially common at the beginning of the professional journey. But the problem is not about them, but about how we assess these mistakes and whether we can find and eliminate the causes in time. One of the most common causes of mistakes is fear. The decisions we make, giving in to this feeling, make us break the rules of our own trading system and strategy. So what is this fear based on, how it affects us, and what to do to cope with it? Let`s try to figure it out.

In trading, it is important to manage your investments wisely and not to bet on one particular financial instrument, because at any moment the price of an asset can change dramatically. No matter how stable the forecasts are. This is the mistake made by many beginning investors — they buy shares for 30-50% of the deposit and wait for earnings.

As the statistics show, 2/3 of people who ventured into forex trading or another form of trading in financial products eventually give up the undertaking altogether. For decades, scientists have studied failure rates in the financial industry and concluded that a novice trader has about a 10% chance of success. Longevity in the market is a prize that only goes to the most diligent and persistent.

All traders are different, but mistakes of psychological nature do not depend on gender or geographical factor. This allows us to highlight several of the most common problems and describe them in detail. Non-Systematic Trading The trading strategy assumes work exclusively by the rules. There is a checklist with a set of filters, and any market situation the trader evaluates according to this checklist. Only systematic trading gives a result on a long distance.

The psychology of trading is one of the cornerstones of success, ignoring it can lead to disaster. For example, Nick Leeson single-handedly bankrupted the 200-year-old Barings Bank (where even Queen Elizabeth II kept her savings, she lost 2 million pounds), and the inability to control emotions in trading led to such a disaster. Psychology in trading is important for everyone without exception – both for a beginner with a couple of hundred dollars and for a pro with a million-dollar deposit.

When analyzing the market, traders, especially beginners, often underestimate market volatility. Usually, we are interested in market entry and exit, but we forget that these parameters largely depend on the market volatility. Unfortunately, it is difficult to estimate this important parameter beforehand. And that is where volatility indicators come in to help traders. Today we will discuss the most effective ones.