The psychology of the novice trader
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Psychology plays a major role in trading. If you can't control your emotions, you can't win in the financial markets in the long term. Worse, you'll probably lose all your capital. By letting your emotions overwhelm you, all the psychological barriers are broken down. You no longer apply risk management (stop losses, leverage, etc.) to your trades, you no longer follow your trading strategy, and you are then managed by only one thing: money. Money is the lifeblood of psychology in trading.
Money is king in trading. It is at the root of your emotions and has many perverse psychological effects. Trading can be a passion, but it is all about making money. Novice traders enter the financial markets thinking it's easy to win. They then try to double their capital as quickly as possible, to make a fortune, etc. (I suggest you read the page: How much capital do you need to make a living from trading).
If they do not succeed quickly (which happens in 99.99% of cases), it is a personal failure. They then perceive themselves to be bad traders. But the lure of profit is so strong, that even after the total loss of their first investment (due to abusing leverage and non-existent risk management), these traders return to the financial markets. This insatiable desire to trade is also driven by the adrenaline generated by trading. Seeing your money move so quickly causes strong emotions, an adrenaline rush. If you mix the lure of profit with this spike in emotions, then trading becomes like a drug. It is addiction to trading that comes into play as with for all types of gambling.
All you have to do is go into a casino to see this phenomenon. Almost everyone loses and yet the casinos are still full. It is the same in trading. For example, with Forex, 90% of private traders lose. But if they lose, it is not because of a bad trading strategy, it is their emotions that drive them to make irrational decisions that inevitably lead to the loss of their capital. You are beginning to realize the impact of psychology in trading.
Let's now look at how the relationship with money impacts traders in their trading.
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They forget one simple thing: losing trades are part of trading. When a losing trade occurs (it is inevitable), the leverage used drains their trading account. The refuse to accept losses. They've worked too hard for that. Their trading must bring them money. They then switch to the typical actions of a trader who wants to make up for his loss. This is the beginning of the end. This results in a further increase in leverage and a total loss of capital. Even for those who can make up their losses, it is already too late. Once you have used a significant amount of leverage, it is very difficult to comply with money management rules again.
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So when they finally start to line up a few winning trades fearsets in. Fear of losing the money earned in their trading. Losing it would mean ruining all their efforts, putting an end to all the time spent learning how to trade. As a result, they gradually become paralysed by this pressure. Several mistakes are then made in their trading: bringing stop losses closer to avoid losing too much on a trade, taking profits early to protect their gains.
Operating in this way, it obviously becomes very difficult to continue to earn money. They then incur losses on their trading account. This then leads to the trader's total paralysis and he then stops trading completely for a certain period of time. The trader no longer takes into account all the signals of his trading strategy. He starts to doubt it, he is no longer confident with it. There is only one way out, return to a demo account (see the page: the advantages of a demo account) to regain confidence in his trading strategy.
Let's now look at the impact of psychology during the loss phases in trading.
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All traders have been through this phase at some point. We tell ourselves that trading is not for us, that we are not able to do it. And yet, if you get to this phase, it's because you're on the right track. Failing to succeed whilst completing trader training is totally normal. We have to accept that everything can be called into question overnight.
We often think we have understood everything and then we realize that we had it all wrong. To be aware of this is to start on the path to success. A trader goes through this phase of anger several times. With time and experience, it fades. On the one hand, there are fewer and fewer mistakes over time and on the other hand, you gradually accept that it is always the market that has the last word. You can lose a trade and there is nothing to be ashamed of. Technical analysis is based on probabilities. Probability is the chance that your scenario will or will not come to fruition. If you integrate this into your trading, it's a big step forward.
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The feeling of hope also comes after razing a trading account. For a short while, the novice trader is put off from trading. He may never trade again in his life. Then little by little, the desire to trade comes back to him, he thinks he may have had bad luck last time. The hope of making money is reborn. If you don't perfect your learning phase after razing your account, don't expect to earn money later. I'll save you money and time, don't deposit any more funds into your trading account.
You can only replenish your account if you have gone through the demo account route, understood the errors that led to your first loss, and are not trying to make money this time, but to last. The longer you last on the financial markets, the better your chances of making money.
Psychology of trading: Obsession with money
Money is king in trading. It is at the root of your emotions and has many perverse psychological effects. Trading can be a passion, but it is all about making money. Novice traders enter the financial markets thinking it's easy to win. They then try to double their capital as quickly as possible, to make a fortune, etc. (I suggest you read the page: How much capital do you need to make a living from trading).
If they do not succeed quickly (which happens in 99.99% of cases), it is a personal failure. They then perceive themselves to be bad traders. But the lure of profit is so strong, that even after the total loss of their first investment (due to abusing leverage and non-existent risk management), these traders return to the financial markets. This insatiable desire to trade is also driven by the adrenaline generated by trading. Seeing your money move so quickly causes strong emotions, an adrenaline rush. If you mix the lure of profit with this spike in emotions, then trading becomes like a drug. It is addiction to trading that comes into play as with for all types of gambling.
All you have to do is go into a casino to see this phenomenon. Almost everyone loses and yet the casinos are still full. It is the same in trading. For example, with Forex, 90% of private traders lose. But if they lose, it is not because of a bad trading strategy, it is their emotions that drive them to make irrational decisions that inevitably lead to the loss of their capital. You are beginning to realize the impact of psychology in trading.
Let's now look at how the relationship with money impacts traders in their trading.
Trading psychology in a gain phase
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Euphoria
: Periods of euphoria occur following a series of winning trades or following an unexpected volatility movement in the direction of trade. On a smaller scale, this also affects all winning trades. Making money on a trade is like winning a major victory (because there have often been many setbacks before) for novices. Novice traders then feel like they are growing wings. They feel invincible, stronger than the market. They tell themselves that they have succeeded where many others have failed. This overconfidence often results in them abandoning money management rules. Their greed is stronger than ever. They therefore increase their leverage to get the most out of their "market science".They forget one simple thing: losing trades are part of trading. When a losing trade occurs (it is inevitable), the leverage used drains their trading account. The refuse to accept losses. They've worked too hard for that. Their trading must bring them money. They then switch to the typical actions of a trader who wants to make up for his loss. This is the beginning of the end. This results in a further increase in leverage and a total loss of capital. Even for those who can make up their losses, it is already too late. Once you have used a significant amount of leverage, it is very difficult to comply with money management rules again.
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Fear
: For those who have worked hard to train well in trading, winning your first trades in real life is the result of the work done. They have made a lot of effort and it is therefore normal that they are finally rewarded. These traders often have a very close relationship with money. They are aware of its value, of the efforts that must be made to earn it.So when they finally start to line up a few winning trades fearsets in. Fear of losing the money earned in their trading. Losing it would mean ruining all their efforts, putting an end to all the time spent learning how to trade. As a result, they gradually become paralysed by this pressure. Several mistakes are then made in their trading: bringing stop losses closer to avoid losing too much on a trade, taking profits early to protect their gains.
Operating in this way, it obviously becomes very difficult to continue to earn money. They then incur losses on their trading account. This then leads to the trader's total paralysis and he then stops trading completely for a certain period of time. The trader no longer takes into account all the signals of his trading strategy. He starts to doubt it, he is no longer confident with it. There is only one way out, return to a demo account (see the page: the advantages of a demo account) to regain confidence in his trading strategy.
Let's now look at the impact of psychology during the loss phases in trading.
Trading psychology in a loss phase
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Anger
: Novice traders are often angry with themselves. Some novice traders know when they make mistakes (being aware of it is the first step towards success) but they are unable to make corrections. There is too much temptation. If the mistake ends in a loss, they blame themselves. A high level of frustration will set in. Gradually, this frustration leads to abandonment. Abandonment of money management rules, trading strategies, etc. As if the mind lets go and tries to convince itself that it is not going to succeed anyway.All traders have been through this phase at some point. We tell ourselves that trading is not for us, that we are not able to do it. And yet, if you get to this phase, it's because you're on the right track. Failing to succeed whilst completing trader training is totally normal. We have to accept that everything can be called into question overnight.
We often think we have understood everything and then we realize that we had it all wrong. To be aware of this is to start on the path to success. A trader goes through this phase of anger several times. With time and experience, it fades. On the one hand, there are fewer and fewer mistakes over time and on the other hand, you gradually accept that it is always the market that has the last word. You can lose a trade and there is nothing to be ashamed of. Technical analysis is based on probabilities. Probability is the chance that your scenario will or will not come to fruition. If you integrate this into your trading, it's a big step forward.
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Hope
: This arises after a loss phase or simply a losing trade. Novice traders always hope to make up their losses. Losing a trade is not throwing money away if your strategy is right. It's just a waste of time. A trading strategy can only be judged over the long term. There are phases of gains and losses, which is normal.The feeling of hope also comes after razing a trading account. For a short while, the novice trader is put off from trading. He may never trade again in his life. Then little by little, the desire to trade comes back to him, he thinks he may have had bad luck last time. The hope of making money is reborn. If you don't perfect your learning phase after razing your account, don't expect to earn money later. I'll save you money and time, don't deposit any more funds into your trading account.
You can only replenish your account if you have gone through the demo account route, understood the errors that led to your first loss, and are not trying to make money this time, but to last. The longer you last on the financial markets, the better your chances of making money.
