Psychological trading mistakes to avoid - Unpublished hidden guide 2023

Psychological Mistakes to avoid in trading

Trades often do psychological mistakes due to their emotion which lead them to more losses and in the end an account with a big zero. Warren Buffett once said a market is a tool to transfer money from the impatient to the patient. So, Let's find out what we can do from our side to minimize our risk and be more patient

 

Mistake no. 1 - Revenge trading

These mistakes can lead you to blow your whole account within a week or if you work hard enough you can have that big zero in a single day. Once a trader starts revenge trading, he/she will kick everything they know about proper trading setup out of the window and will trade like a madman just to make back that loss. Now this may work sometimes and you may be able to make a profit too but if you keep this up you will be crushed as you as a trader have to trade regularly and luck doesn't work every day. The market doesn't care about you and your money and you will be completely responsible for your losses, and if this is something you are struggling with let's talk about the solution.

Solution

If you are having this problem where losses are upsetting you and get you to this point where you start taking revenge from the market. It means your positions are too big and so you are not able to handle the losses, in such case trade a small amount that you can handle because losses are part of trading and once you are capable of accepting this fact you will trade with logic even if you lose because the key to make a profit is to make your winners outperform your losers. 

NOTE - If you are trading with a small amount and still facing this problem then the problem lies in your mindset or your expectation from trading, don't expect to make a profit every day because this is not realistic, in such cases focus on the long term result like weekly, monthly, quarterly or even yearly results and make sure you apply your strategy because as long as you are following your strategy patiently it doesn't matter the day is green or red because consistency is the key to success.

 

                                General risk warning: your capital is at risk

Mistake no. 2 - Gambler's probability

Let me explain it simply;

we all know that a coin flip is a 50/50 bet and if you flip a coin 20 times according to the probability of a coin flip you will expect to get 10 heads and 10 tails, but this is not the reality and we can see different outcomes in either direction. Now let us ask ourselves, suppose we flip a coin 10 times and the outcomes are all heads now what will be the result of the 11th flip, heads or tails? if your answer is tails then you my friend have fallen in the category of a gambles probability mistake, let me explain why because the probability of the next flip is completely independent of the past results. The main problem is thinking that the series of the result will somehow affect the future outcome which is completely wrong because if a coin gives 10 heads doesn't mean that now the coin will only give us tails as it somehow knows that the past results were all heads. In trading, if a trader has a such problem and he faces 5 losses in a row then he will start thing that the losing streak has to end soon and he will recover all his losses and so he increases his position size(Martingale strategy) but the reality is you are just increasing your risk on a trade which has the same probability of success of all the one you just lose your money on.

Solution

As you all now have a clear understanding of this problem, try each trade independently from any past trades you have made. if you have a streak of losers that does not mean that the next trade will be a winner, and on the flip side if you have a line of winners that does not mean that the next trade is more likely to be a loser.

Mistake no. 3 - Fear of missing out

These kind of traders are very optimistic about each trading setup they see and instantly takes trades because they think this trade could be the one because this trading setup looks great and it has to be the one and if they miss this trade there may not be an opportunity like this one for a while and it's so silly, of course, there are going to be more opportunity in the future. But this type of thinking affects most traders mainly because they don't even realize it's affecting them and it will lead you to do two things.

1. It will cause you to take every single trade even if it's not a good trading setup.
2. It will lead you to increase your positing size because if this trade turns out to be a winner then it will cover all the previous losses and will make you more money but in most cases, you end up sitting on huge losses which then will lead you to revenge trading.

Solution

No matter how many trades you take you will never be going to take all of them, and the secret of winning is not taking all of them but taking some of them as the market gives opportunity all the time and if you will be able to take some, it will be enough to make your day a true success.

 

Conclusion;

Trading is a game of numbers and you have to avoid these psychological mistakes and focus on trading the numbers once you start doing that you will take your trading to the next level. The trading world is not for weak emotional people so be strong and have patience because this will make you emotionally strong.

If you find this article informational then do share your feedback by commenting and if possible share it with your trading community because it can save someone from making huge losses.

How to Practice This Strategy

The best way to get a firm grasp on any strategies is through deliberate practice.

There is no more efficient way of practicing that than in a Demo Trading Account with a real trading environment.