Inside The Mind of a Successful Trader

Trading psychology refers to the way someone approaches, thinks about, and feels about the stock market and their trades.

Your stock market psychology impacts your overall behavior in the market, which in turn impacts your trade’s performance. Apart from the technical aspects (entries, risk management, and the like), what truly matters is your trading psychology.

You might be an experienced trader with good knowledge and skills when it comes to taking profitable positions in the stock market. However, if you let your emotions cloud your decision-making, you’re going to face losses. To be a successful trader, you need to recognize your emotional biases like greed, hope, euphoria, and panic — and make sure you’re keeping them in check.

The majority of traders spend a lot of time and energy worrying about which way the market will inevitably go, whether or not they’ll make profit or experience losses, leading to a lot of stress and wrong buy/sell decisions.

A successful trader, on the other hand, understands that once they have entered a trade, they don’t have any control over its outcome. Instead of worrying about gain or loss, they work hard on fine-tuning their trading strategy.

Here are a few ways to have the right psychology of trading like a successful trader that is likely to increase the probability of success in the stock market.

Overconfidence and overthinking

A successful trader keeps a journal to record his trading activities. They write everything about their trades: losses, profits, trends, decisions, etc.

This helps them to analyze their decisions after a trade is closed and examine what worked and what didn’t. It allows them to assess their trading decisions and helps them to trade mindfully in the future, and subsequently improves the performance and profitability of their trading.

“You can’t get too into yourself when it comes to trading. There’s a point to being analytical, but sometimes you can cross into overthinking,” said Matt Choi, an experienced trader. “Overthinking breeds, doubt, doubt breeds panic, panic breeds brash decision-making, which can lead to some disappointing outcomes.”

Choi founded Certus Trading, an online trading platform for intermediate-level traders who want to bolster their existing stock knowledge. With his wealth of experience, Choi understands the importance of having a level head when trading.

“Overconfidence in your trading knowledge can give you a false belief that your views and decisions are always right,” Choi said. “A successful trader is careful not to fall into the trap of their own biases, opinions, and market views.”

Learn from mistakes

A trader may work as per their own psychology of trading, but the stock market can prove them right or wrong in a matter of minutes or even seconds. A successful trader accepts defeat as graciously as they accept victory.

The pros fail all the time, too – they just don’t tend to advertise the fact, according to investment firm Charles Stanley. In fact, it’s widely accepted in fund management that getting 6 out of 10 market-beating ‘winners’ is a decent result, the firm wrote in an article about learning from mistakes.

That sort of “hit rate” would be enviable among the vast majority of traders.

“In this context, you really don’t need to beat yourself up about your own stock-picking mistakes,” Charles Stanley wrote. “They are part and parcel of the investing experience. All you can do is try and tilt the odds in your favor as much as possible and protect yourself by having a sufficiently diverse portfolio, so you are not reliant on too few companies delivering.”

This stock market psychology doesn’t guarantee traders win all the time. But it does help them to let go of worrying and stressing about the outcome of their trades.

Balance trading risks

It’s a common psychology of trading to take positions in the stock market even when there’s no meaningful opportunity. Some traders can’t resist the temptation to play.

A successful trader, however, understands that capital protection is a far more important objective of trading than profit maximization. Profit maximization can be achieved only after you protect that capital.

A successful trader knows when and what to trade — but it’s even more important to know when to avoid it.

“A successful trader safely measures things to stop loss and protect their capital by following a disciplined trading plan to balance risks and minimize losses,” Choi said.