By Taro Hideyoshi
There are many experts who teach the psychology of trading. Also, there have been many books written trying to teach the discipline needed for trading. Although the psychology is a important key for trading, you do not need to spend your money and your effort attending seminars to learn it.
This article intends to provide you a few simple psychological rules for trading that should greatly enhance your ability to trade effectively
Think about your losses as a cost of doing business
You have to accept your losses as a cost of doing business. Most successful traders said that the most difficult thing about trading is accepting your losses. Everyone has the desire to be right, to be correct all of the time. Therefore novice traders usually think that their losing trades mean that they make some mistakes or something is not working. But for experience traders, losses are just a cost of doing business.
Every great traders cannot win all the times. If you look at the performance results of them, you will see that they all have a large percentage of losing trades. Some of them use to lose money on more than half of their trade.
I guarantee you that you will have the times that you loose. So, learn to accept them and live with them. You will be spending a lot of time with them.
Use historical statistics
Before you trade, You have make sure that your trading strategy will eventually make profits for you. You should know its characteristics. In order to do this, you may have to use historical statistics.
Using historical statistics for your trading strategies, A.K.A. back-testing, gives you great peace of mind, particularly in accepting the losses.
By knowing the historical performance of a trading strategy, you may have psychological comfort during the tough periods of losing trades and drawdown. You will get the ideas about the trading strategy e.g. how many losing trades it has in a row and the largest losing trade the strategy has experienced.
Let the market and strategy determine the profits
Once you make sure that your selected trading strategy will make you profits, do not try to predict the market and do not try to second guess your strategy. You have to let the strategy be the strategy. Let it make money if it can. However if the market does not move in the manner that allow it to make money, it will not make money.
Put the responsibility of making money on the strategy and the market.
Taro is an experience trader who trades in stocks, futures, forex. He strongly focuses on technical analysis, trading systems and money management.
If you would like to find more articles on MetaStock Tutorials, MetaStock Formulas, Trading Systems and Money Management. Please go to MetaStock Trading System.
You would also find the list of recommended books for trading & investing at The Investing Books.