Human Psychology and adaptation of trading plan/system to fit a trader’s psychology is the 3rd important element of success in trading. It's difficult to be disciplined and not allow our emotions to get the best of us. Without having a good grasp of trading psychology and understanding their risk tolerance, people can deviate from their trading plans, sell too early, buy too late, and jump on hype trains like meme stocks due to the fear of missing out. According to psychologist Dr. Brett Steenbarger, Cognitive/Emotional Mismatches are the main reason some traders fail to execute their trading systems. One of the main Cognitive/Emotional mismatches is performance pressure- which is a self-imposed pressure to make profits quickly and perhaps 100% of the time. This can be a double-edged sword. It’s important to not allow performance pressure to adversely impact a calm, relaxed, and focused mindset, which is necessary for the proper execution of a profitable trading system. Due to performance pressure, most aspiring traders increase their size and number of trades, which eventually adds to quick/big losses and account margin calls, increased stress, and loss of confidence and mental trauma (that impacts their future trading career if not addressed). Read more about the Human and Market Psychology Conflicts and Emotional/Cognitive Mismatch here: Human and Market Psychology Conflicts Emotional/Cognitive Mismatch And also watch the "Price Psychology Action" and also the "Performance Pressure" videos below: Price Psychology Action Human Psychology Conflicts: Performance Pressure Have you ever felt performance pressure before? What methods have you used to overcome it?
I have never felt such performance pressure before, but yes I did let the emotions get the best of me because I was making profit once or twice, but that is all.
Don't get me started about the importance of psychology. It's not 3rd by the way, it is the most and number 1 priority in any trading endeavor. Every decision you make and every design in your trading comes from how you feel, think, and be. It is all psychology. Performance pressure is a self inducted issue and very contra-productive. Setting goals like 'making this amount money in X time' is a performance killer number one in trading. Good trading is process-based. Goal setting should be following your rules, no matter the money outcome. Understanding how your system works in every market environment will take the stress away. Understanding that you meet your goals by playing with your position size and not your rules of entry and/or exit, is key. Understanding probability, really understanding, not out of a textbook, but deep knowledge out of your own experience and knowing anything can happen is another key to get to stress-free trading.
Could not agree more on this. This is such a bad mindset while trading. Your main goal making is to make profit should never be the first thing to come in mind.
I agree ; When it comes to the world of science, psychology isn’t one. It is a subject area that is too subjective; conclusions are mushy, and not falsifiable or repeatable. As a college major, it is not in the top 20 (or 30) highest paying majors but in fact one of the lowest. The same is true for graduate school salaries. Trading psychology recommendations are outright silly: Consider the statement: “The most important attribute for making money in financial markets is self-confidence” but how is confidence, self or otherwise, defined and measured? If self-confidence cannot be defined or measured, it cannot be understood so how can it be the most important? The same can be said for this statement: “Do not trade money until you are fully confident in your strategy”.Since “fully” cannot be measured it is useless. Consider the list of 6 keys to managing trade psychology [1] which include “have an edge” (what is that exactly?); know thyself (who me?) and avoid emotional mistakes (My, oh my). Put psychology to the curb.