Psychology Of Trading -

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Psychology Of Trading

Psychology Of Trading

The psychological aspect of trading is usually underestimated by those new to trading. The psychological problem for most traders is the fear of losing - ironically it is this fear that causes most traders to lose money in the long run. The fear of losing can manifest itself in a number of ways:

Unable to pull the trigger and enter a trade. A trader can start to lose faith in a system that has produced a number of consecutive losing trades and might start to look for further confirmation before taking the next trade. Inevitably the trade that is not taken will be the winner. The point of a mechanical trading system is that it forces the trader to take the trades that they wouldn't normally take just by looking at a chart.

Unwilling to accept a losing trade and cut a losing position short. Losing trades are an inevitable part of trading, many successful systems will produce more than 50% losing trades. The key is to never marry a position - if it hits your stop loss then exit it. Preserve your capital for the next trade.

Taking a profit too early to prevent a winning position become a losing one.

There are a number of ways to counteract the fear of losing:

Have a plan. Never enter a trade on a hunch, tip or gut feeling. Always know your exit before you enter a trade.

Discipline. Developing your own trading plan that you believe in will make it much easier to follow than trying to trade someone else's.

Money Management. If a position is too large for your account size then you are more likely to hang on to the losers or cut the winners short. Each trade is merely one step along a very long journey. Strict money management rules should ensure that you never stake more than you are comfortable with.

Ignore the money. Don't view your trading account as money, view it as points. The better your trading plan and your execution the more points you will accumulate as a reward. It is difficult to trade objectively if all you can think of is that your last losing trade could have paid for a two week holiday or bought you the latest camcorder!

Tim Wreford runs Online Futures Trading, a website that provides information and resources for traders. Tim also provides a free day trading system, the results of which are updated daily on the site.

In The News:

IBFX Adds PowerStats to Growing Library of Free Online Trading Tools
Business Wire (press release), CA - 23 hours ago
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Currency News
Australian Dollar Falls on Home-Loans Data; NZ Dollar Rises
Bloomberg - 3 hours ago
Australia's currency declined to 95.07 US cents at 3:05 pm in Sydney from 95.23 cents in late Asian trading yesterday. It reached 94.77 cents, ...
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Canada Afternoon: C$ Ends Lower As Oil, Commodities Retreat
FXstreet.com The Foreign Exchange Market, Spain - 13 hours ago
A generally stronger tone in the US dollar was also cited as a negative for the Canadian currency. The US dollar was trading at C$1.0196 at 3:44 pm EDT ...
Canada Morning: C$ Down Slightly As Oil Prices Slide Further FXstreet.com The Foreign Exchange Market
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Reuters
Dollar Rises as Bernanke Says Fed May Extend Lending, Oil Falls
Bloomberg - 12 hours ago
... chief currency strategist at FOREX.com, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey, in a Bloomberg Radio interview.
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Dollar holds gains after relief from Bernanke, oil guardian.co.uk
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Asian markets rise on Wall Street gains
Trading Markets (press release), CA - 5 hours ago
In currency trading, the dollar strengthened against the Japanese currency to the mid 107-yen levels from mid 106-yen levels late Tuesday, but it opened ...

ABC News
Crude Prices Drop By More Than 3% As Dollar Strengthens
AHN - Jul 7, 2008
In currency trading, the yen weakened and changed hands at 107.68 yen per US dollar in Asia. In late New York on late Thursday, the Japanese currency was at ...
Oil falls more than $2 CNNMoney.com
Oil Is Steady After $3 Drop on Dollar, Europe Economic Weakness Bloomberg
What's behind today's high prices? CBC.ca
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Swiss Currency Falls To 13-day Low Against Euro
RTT News, NY - 38 minutes ago
(RTTNews) - During early European deals on Wednesday, the Swiss franc pared the gains it posted in Asian trading against other major currencies. ...
Dollar bounces back against majors RTT News
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Seeking Alpha
Finding Your Comfort Zone with Currency Investing
Seeking Alpha, NY - Jul 7, 2008
Although currency trading is an ancient practice, the current era began in 1972-3. After decades of fixed rates under the Breton Woods Agreement, ...

Increase your wealth
Live-PR.com (Pressemitteilung), Austria - Jul 7, 2008
(live-PR.com) - Sunburst Media, 6 July 2008( Live-pr ) Sunburst media is an upcoming firm which aims or does financial- currency trading. ...

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