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<\/a><\/p>\nIn 2020, with work moved to the home office, many folks decided to try their hand at trading for the first time.<\/p>\n
Ironically, most entered the market right at or near the bottom.<\/p>\n
Suddenly, a large group of relatively inexperienced traders were made to believe they were market mavens simply through buy and hold strategies.<\/p>\n
This line of thinking lead to many trading haphazardly until eventually most if not all of the money they had made disappeared through bad trading decisions.<\/p>\n
After suffering loses, for most people anyway, only then can a trader finally look consider trading psychology tips and discover that they may have been holding onto destructive biases with regard to how they were approaching the market.<\/p>\n
Believe it or not, having too much early success in trading can lead to bad habits in the future. And it can create a bias that\u2019s hard to break.<\/a><\/p>\n You see, trading requires skill and experience. Two attributes new traders don\u2019t inherently have when they start.<\/p>\n The only way you can develop skill and experience is through repetition and time.<\/p>\n Proper practice and market study paired with an appropriate trading plan<\/a> is what many experts suggest are keys to improving the possibility of trading success.<\/p>\n Many life long traders will share that emotional stress can very much impact trading.\u00a0 Reading books and watching videos alone can\u2019t prepare you for the emotions that will run through your body when you\u2019re in a trade<\/a>. Academia also cannot simulate the pressure you\u2019ll feel knowing that one bad mistake can take you out of the game and cost you hard earned money.<\/p>\n As an example to illustrate the above point, would you prefer to fly with someone who has flown 50 hours and never watched a video on flying before or would you prefer to fly with someone who has never flown a plane but watched 1000 hours about how to do it on YouTube? Most people would choose the person with experience because flying a plane in real life is hard to simulate. The same is generally true about trading.<\/p>\n There are over 250 trading days in the year if you\u2019re an equity trader. The futures market has even more! Consistently staying on top of your game is challenging for even the most experienced traders.<\/p>\n Trade long enough, and you\u2019ll experience a bad day.<\/p>\n There are many ways you can hurt your chances of success in trading. Today, we\u2019ll cover five trading psychology tips, what issues they cause, and how to fix them.<\/p>\n There are multiple mentors and trade alert services out there. Some are good, bad, and downright awful.<\/p>\n If you decide to join one of these services because you believe all you have to do is copy their trades, and you\u2019ll be successful, you\u2019re in for a rude awakening.<\/p>\n You see, even if you follow the same futures symbol and get in at the same price, it could still be a completely different trade.<\/p>\n For example, you and the person you\u2019re following could have different risk tolerance levels and convictions on the trade.<\/p>\n Here\u2019s an example.<\/p>\n Let\u2019s say you follow someone in and buy crude oil futures at $87, which dips at $85. Since it\u2019s not your idea, you might panic and stop out early, even though that\u2019s not the trade the mentor you\u2019re following has laid out.<\/p>\n Or what about this\u2026the trade plan is to get out at $85, so you do, but the mentor you\u2019re following decides to do an audible and add to their position at $85 instead of bail the position.<\/p>\n Working with a mentor is not a bad thing. A good one can shave time off your learning curve and help you avoid pitfalls<\/a>.<\/p>\n But you won’t create a sustainable business if you\u2019re simply copying trades and not trying to learn the reasoning behind the idea, the levels they are playing, and the risk-reward on the trade.<\/p>\n If you\u2019re working with a mentor to learn a new strategy, then play it small and try to learn what they\u2019re doing instead of using it as a tool to get rich quickly which is almost always impossible given the risk inherently involved in trading.<\/p>\n (Please be aware that many trading educators use trading rooms and trade demos, so your execution and trading results may differ in this way as well. Also be aware many trade educators and trading rooms are unregulated! They can say and do things that would not be permissible for regulated firms to do)<\/p>\n There are as many trading techniques and styles as there are stars in the sky.<\/p>\n Everyone has different strategies.<\/p>\n Some work only under the right conditions, while others work for years and then quit.<\/p>\n It\u2019s easy to get caught in \u2018style drifting,\u2019 jumping from strategy to strategy in an effort to find the \u2018one\u2019 that clicks.<\/p>\n Let\u2019s say you typically scalp index futures.<\/p>\n Suddenly the grain market is running hot, and you want a piece of the action.<\/p>\n You have no idea what catalysts move the grain market, how they move, or the optimal times to trade it. But you jump in anyways, using a strategy you developed for crude oil.<\/p>\n This is an example of a trader who is style drifting.<\/p>\n The best traders stick to what they are good at and try to size up as they get better.<\/p>\n That could mean trading only a few markets. Or if they are a technical trader, it could mean trading a few setups. They don\u2019t try to be a jack of all trades.<\/p>\n Warren Buffett is one of the best investors of all time. But it’s very possible he’d only be average at best if he tried his hand at day trading. The point here is that just because you are good at one thing doesn’t mean those skills will carry over to something else.<\/p>\n Through repetition and experience<\/a>, you\u2019ll discover what your strengths are. Once you discover your strengths, apply them to single Futures contracts.<\/p>\n Avoid the temptation of jumping into a hot market if you have limited experience.<\/strong><\/p><\/blockquote>\n If you want to learn a new strategy or market, trade it significantly smaller than what you\u2019d do with your so called “bread-and-butter” trades.<\/p>\n Not all strategies work all the time.<\/p>\n There are moments when the markets can be highly volatile and others when they\u2019re not. Markets can trend up; they can go sideways or trend down.<\/p>\n That\u2019s why it\u2019s critical to analyze the current market conditions and make adjustments.<\/p>\n As an example, if you\u2019re a swing trader<\/a> and the markets are trading choppily, look to take profits quicker on your trades.<\/p>\n Or, in trending markets, leave a portion of the trade on with a stop at breakeven to see if you can\u2019t squeeze out more profit.<\/p>\n While it\u2019s essential to make adjustments to the current market, it\u2019s also critical you make adjustments based on how you\u2019re trading.<\/p>\n For example, if you\u2019re experiencing a losing streak, it\u2019s probably best to scale down your position sizing until you build your confidence back or see a change in your trading results.<\/p>\n If you\u2019re trading well and your setups are working, you might choose to try to press into your streak based on the opportunity you see.<\/p>\n Many traders don\u2019t make adjustments and then wonder why they aren\u2019t having the type of success they expect.<\/p>\n Reviewing your past trades is a great way to identify if you need adjustments. This is why a trading journal is critical, you must keep notes of your trading success and failure so that you can learn from your experience. Make note as well of your feelings and emotions when trading. Being aware of situations that put you into a poor mental state can be critical to understanding when and where you are most likely to lose money.<\/p>\n The best futures traders can focus on the setup without being distracted by their profits and losses.<\/p>\n However, for a new trader, that\u2019s easier said than done.<\/p>\n When you focus on profits and losses, you let that dictate your decision-making.<\/p>\n That\u2019s why some traders will bail out on a trade once they see profits on their screen.<\/p>\n Others are too stubborn to get out of a losing trade because they refuse to take a loss.<\/p>\n One way to avoid trading your PnL is by creating a trading plan<\/a>.<\/p>\n If you size your position based correctly and create a stop loss and profit target. Following your plan allows you to see whether your strategy is viable.<\/p>\n If you don\u2019t honor your plan, then you won\u2019t know if what you\u2019re doing is working or not.<\/p>\n Utilizing software that can help you journal can keep you sharp.\u00a0<\/a><\/p>\n At the start of this article, we discussed Covid and working from home, as being the start of a near perfect storm that brought thousands of new traders into the market.<\/p>\n Many of these traders looked at their success and figured they could do without a trading plan.<\/p>\n Sometimes traders will get overconfident after a series of wins.<\/p>\n They\u2019ll believe they\u2019ve figured out the market and start to get lazy.<\/p>\n Slowly, the trader gets more aggressive with bigger position sizes.<\/p>\n Traders who keep a trading journal<\/a> may forget to update it or set it to the side entirely.<\/p>\n1: Copying Trades<\/h2>\n
2: Style Drifting<\/h2>\n
3: Not Making Adjustments<\/h2>\n
4: Trading Your PnL<\/h2>\n
5: Trading Without A Plan<\/h2>\n