How to understand the psychology of trading to control losses?
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How to Master Trading Psychology & Control Losses
The emotional and mental factors that influence your decision-making while trading in the stock market is known as trading psychology.
One who controls their mind and emotions while trading can achieve great heights in the stock market.
Then how to control emotions? Go through the following tips to control losses in stock market.
Control Emotions:
Emotions like fear, greed, hope, and overconfidence can hugely impact your decision making while trading.
When prices go up, you might feel greed and do not exit the positions even though it hits your target price.
On the other hand, during a down market, fear may take lead and forces you to exit the trade before hitting your stop loss.
Understanding Fear and Greed:
Fear always stops you from taking risks, even when there are potential gains. On the other hand, greed can make you hold onto a winning position for too long, ends up in a huge loss (due to market reversal). Balancing these emotions is key to get successful in trading.
Discipline and Patience:
Discipline means sticking to your trading plan, which includes entry and exit points & waiting for the right opportunities to exit or book profits.
Overtrading:
Overtrading occurs when you excessively buy and sell. This often leads to higher brokerage charges and losses. A disciplined approach helps control overtrading.
Accepting Losses:
Losses are inevitable in stock market trading. It is important to accept them and not let them affect your confidence. Learning from losses and understanding that they are part of the trading process will help you grow as a trader.
Continuous Learning:
Continuous learning about the stock market, trading strategies, and technical indicators is vital. Practice & learning helping you to stay in control. You can prefer top YouTube channels to learn for free.
Avoid Revenge Trading:
Revenge trading occurs after a significant loss, where you try to recover loss by taking multiple trades.
It is important to take a break, analyze what went wrong, and come back with a clear mind and a well-thought-out strategy.
It is better to avoid trading for that day if possible. Most of the revenge trades leads to significant losses.
Maintain Trading Journal:
Maintain a trading journal to track your trades and analyze mistakes. Analyzing past trades will help you avoid doing same mistakes repeatedly.
Here is the sample trading journal looks like, you can modify it accordingly as per your convenience.
Download Sample Trading Journal
Trading is all about Psychology, how well you understand the human psychology will make you a better trader. Remember, making huge profits in a intraday is next to impossible. Understand the psychology, proper entry & exit, strict stop loss, and discipline will make you a profitable trader over a period of time.
Not all the traders become successful, our statistics say that over 95% of traders lose money in stock market. But why?
Following are the major factors behind the 95% failure rate