The Secret To Trading Psychology

Let’s do a slight recap of my introduction of this 10 Article Series entitled Psychology & Trading. I posed that psychology is not spoken about enough in this field and that training programs for traders do not effectively deal with the psychology part of all traders no matter what your experience level is. Remember trading is 60% psychology, 30% money management, and 10% strategy.

I can imagine you are sitting there thinking, what angle of human psychology is involved and how is that connected to trading. Are you ready? Trading is impacted by all aspects of psychology. And, there are two branches we need to split psychology into for trading. Those two branches are the psychology of the trader and the psychology of the market.

In this article, we are going to start by discussing the psychology of the trader. First, let’s acknowledge that we all are emotional beings. Yes gentlemen this includes you and boys do cry.  The trading field is dominated by male, and egos run big and strong (male verses female traders will be addressed in another article). Emotions get in the way of every trader. It doesn’t matter if you are trading in pennies or millions of dollars. The emotion that is activated when real money is on the line and you are watching price action move in your favor or against you, is not just one single emotion, it’s a bundle of emotion all twisted up in a little rubber ball that is bouncing up and down and all around.

As a trader you will feel excited, happy, and invincible at times and then in a split second you can feel nervous, scared, angry, and destroyed.  Sometimes you feel like you dominate the market and then in the blink of an eye the market dominates you. And, let me be very honest here, there is nothing more humbling than when you have an account with your capital in it and right in front of your eyes, you blew it right out of the water and you are left with an account balance of ZERO. All your capital gone.

The first thing you need to work on as a trader is being void of emotion when trading and about your trading in general. Be a machine and be mechanical. Two great trading resource (written by Mark Douglas) for your trading library that you should be building in entitled “Trading in the Zone: Master the Market with Confidence, Discipline, and a Winning Attitude” and “The Disciplined Trader. Developing Winning Attitudes”. A great full length interview of Mark Douglas entitled, “Mark Douglas-Mind Over Market can be found on U-Tube.


The two emotions that we need to deal with first are fear and greed. Fear leaves a trader either paralyzed, jumping out of a good trade too soon, or not making another trade when a trade set up is still evident and looks strong. Fear keeps traders from taking action when it is necessary to take action in order to engage with the market in order to make money. The second emotion is greed. Greed does exactly the opposite of fear. It causes traders to take on too much risk, engage in a market that is either too volatile or not volatile enough, stay in losing trades, mismanaging stops, and staying in trades too long. These are only two common emotions we face as traders. There are many more but I think you get the idea here. Now let’s see what we can do so that we do not become our own biggest obstacle to our trading success.

As a result of our human psychology we, as traders, often come to the market with the wrong emotional outlook. Traders who are consistently profitable leave their emotions on the side lines. They enter there trading space and view the market with no expectations and view themselves a well- built machine. Which means they do their job (which is to follow their trading plan with no exceptions). Charts represent prices generated by buyers and sellers, they have a strategy that gives them an edge, they execute based on their signal with their risk parameters in place, the trade either moves in their favor or not, if the stop is hit then that trade is over and its on to the next trade.

Furthermore, in order for us (traders) to become mechanical in our trading, the first two emotions that must be addressed and set aside are fear and greed. How can this be done? The following bulleted points give you your guide. I am assuming you already have invested in your education and professional development as a trader and that you have developed a plan. If you have not then do those two things before anything on the following list:

  • You must get into a small, very small, account so that when you trade you are putting capital on the line. One micro lot is .10 cents a pip. It may not sound like a big deal but whether its .10 cents, 10 dollars, 100 dollars or 1000 dollars a pip, money is money and it changes your thinking and your thinking is your psychology.
  • Do not trade with money you cannot afford to lose. Meaning it’s not your mortgage payment etc. If it was gone right now, you would not be financially hurt in any way.
  • You must follow your plan to the letter.
  • You must execute your learned strategy without exception.
  • You must always have your risk defined and stop loss in place.
  • You must get to the point where you feel nothing and have no reaction to a trade (winner or loser).
  • You must recognize when you do not have yourself in check psychologically and stop trading (you can tell this when you have executed a few trades, they didn’t work, and your reacting).
  • You must get to the point where you are not looking at your P/L or even number of pips gained or lost after each trade. Check at the end of the session or day. And the reason for that is you need to reflect upon why and what you did or did not do to make it a profitable trading day or a trading day that was not profitable.
  • Last, give yourself time! This is the most difficult and longest part of your development as a trader. I have struggles with this at times and so does every trader at every level of their trading careers.

In conclusion, the secret that I mentioned in the title of this article is that there is no secret. There is no one, perfect, way that always works for us to trade well. In trading we refer to that as there is no Holy Grail in trading. You will never find the one key that will make you a successful, profitable trader because it does not exist. You need to master yourself (psychology), manage your capital appropriately and learn a strategy that works.

Profitable trading to all!

Debbie Badawi

FxST Education Specialist

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Author Bio

Dr. Debbie Badawi’s formal education, training, and career is in the field of education. Ten years ago, upon an early retirement, she entered the world of trading equities and then found her passion in day trading and swing trading the Forex Market. Although she trades various currency pairs, she spends much of her trading focus on the EUR/USD. In addition to trading, Debbie mentors other traders, works with the team at FXST, and runs her educational consulting business where parents find educational solutions for their children. When asked what’s next or what’s Debbie’s future? Debbie smiles and precisely says, “ a simple life comforted by a six figure income and a financially free retirement.”

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