For Business

Trading Psychology

What Is Trading Psychology

Trading psychology is the study of how feelings bend the decisions a plan had already made, and of the habits that keep those decisions on the plan. This paper shows you the four feelings that do most of the bending and what each does — fear closing early, greed sizing up, hope holding past the stop, regret chasing late; the idea as the attitude indicator in a cockpit, believed over the body in cloud; the same price line read through the glasses of a win and of a loss; the loop from result to feeling to decision and back; and the Comment field on your platform, where the reason for a trade is written before it and read back after.

Difficulty
Beginner
Reading time
5 min
Pages
8
Reviewed by
Saman Rahbar

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Four feelings, and what each does

Trading psychology is the study of how feelings bend the decisions a plan had already made, and of the habits that keep those decisions on the plan. Four feelings do most of the bending. Fear closes a good trade early or keeps a trader out of one the plan said to take. Greed makes the size bigger than the rule after a run of wins. Hope holds a losing trade past its stop. Regret, after a missed move, chases the next one late. Each arrives with a good reason attached. The plan was written on a day when none of them was in the room, which is the only reason it can be trusted more than they can.

The instruments in cloud

Picture the attitude indicator in an aeroplane's cockpit, the dial that shows the horizon. In cloud the pilot's body reports level flight while the dial shows a bank to the left, and pilots are trained to believe the dial, because the body is the thing that is wrong in cloud and it is wrong with complete confidence. Trading psychology is the same lesson. The plan is the dial, written in clear air; the feeling is the body, reporting from inside the cloud of a live trade. The discipline is not to feel nothing. It is to fly the dial while feeling everything, and to know which of the two is the instrument.

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