Stock Trading Psychology Plan

Without an understanding of trading psychology and the various issues that circumvent method, there will be virtually no chance to overcome the fear, confusion, and despair that can be inherent in trading. Ultimately, after a series of consecutive losses, method becomes replaced with a feeling that it is impossible to do anything right; if for no other reason than this situation, trading psychology is more critical than trading method.

New Trader Scenario

Consider a scenario where a trader develops a method for day trading an index future. The method gives 15 trades per day, and the trader has gotten to the point where they are able to paper trade with the following results: 9 wining trades averaging $85 each, and 6 losing trades averaging -$65 each thus giving $375 average daily gains. The trader has achieved these results for three consecutive months; their paper trading goals have been met and it is time to start trading real money.

Real money trading begins, but thingsĀ quickly change. Instead of trading their method like they did when paper trading, the trader starts skipping trades trying to pick the winners instead of accepting the 40% losers; of course, they invariably pick more losers than winners. Trying to then correct this problem, the trader decides that maybe they are entering their trades too late. So now instead of letting the setup complete and then doing the trade, the trigger is anticipated so the trade can be entered earlier – the losses get worse.

With the continued losses the emotions take over: What is wrong, why am I such a pathetic loser? Maybe its not my fault, maybe the method just doesnt really work.