Hello, and I thank everyone for looking into my article. Here, I want to dig deeper into trading psychology and provide important tips for beginners but also for advanced traders that can serve as a good remider. So, without further ado, let's dive into the topic.
1.Set realistic goals
I remember entering the crypto scene in 2016. I was excited about the huge gains. Some coins were going up 1000% in one day. Back then, I thought to myself, "Man, if I invest $1000 in X coin and it performs 10000%, then I will have $100,000 easily, right,?" Little did I know, and as time went by, my holdings/trades performed positively, some even by a few 100%, but I was not satisfied. Because in my mind, my goal was 10000%, and that was my first mistake. I set myself an unrealistic goal and while this lesson was not directly related to my trading per se, it was an invaluable experience to learn.
But to further explain, in investing terms, we call this anchoring. Anchoring bias is a perception bias that arises when you are attempting to make a guess about something for which you have limited information. The best example of this is the “Jelly bean example”. Imagine you have a jar full of jelly beans, and someone asks you, "How many do you think are in the jar?" If he/she said, "Do you think there are 500?", would that influence your decision? Would you think of a number that revolves around 500? Often, we read news about our favorite investments; if someone said your favorite investment is going to be at $50, would that influence your target for a goal?
Nevertheless I could have won big, but my ignorance of what I wanted to win and my greed kept me from winning. So before you think about investing/trading, THINK ABOUT WHEN YOU WANT TO TAKE A PROFIT. The same way you think about setting a stop loss. Make yourself a realistc target based on logical research and avoid wishful thinking, this way you will be even happier if your trade exceeds your expectations and you will get a feeling of satisfaction instead of constant disappointment because your trades never hit your take profit.
2.Discipline and Patience
Investing/trading is an area where these skills are crucial.
"There is a time to go long, a time to go short, and a time to go fishing," Jesse Livermore once said, and that's perfectly true. Sometimes we are desperate for a trade, but we can't find any. Sometimes we find a ton of trades and begin to have anxiety due to the sheer number of opportunities. Sometimes we are desperate to make back our loss. Sometimes you open a trade, and it goes against you on the first day, but your overall analysis is correct. You can't close out a trade when a candle goes against you unless it's part of your strategy. Conversely, you can't open a trade just because you have a gut feeling about an investment; it has to fit your strategy criteria.
So the crucial question is the following; Will you have the discipline and patience to believe in your strategy no matter what? Long term or short term, there is no difference. You are your trading system; you have the power to make more money or to lose a little bit. You have to be patient enough to be able to sit on your hands if no opportunity exists and blend out your anxiety when there is an opportunity to grab. Be aware that there is no perfection in this game; there will be days when your trade turns into a loss or a loss into a profit, but staying disciplined in your approach is what will net you a profit in the end.
If your strategy does not work over 500-1000 trades. You can consider to move to the next one, and it wont be a loss because you have gained experience and insight, so you can work out an even better strategy for the next time while including previous mistakes. If you want, go for papertrading, but be aware that this will never reflect the reality of the emotions you would feel compared to a real account.
3.Emotional Management
What does this mean? Sometimes it's important to distance yourself from your emotions. This is extremely difficult and probably the hardest thing to learn when trying to trade. Because you and I are human, it's natural for us to have feelings of greed or fear, regret, and pain, but we must control these emotions to be successful. If you close a trade too early, you may lose the opportunity to catch the winning trade that will make up for all your recent losses. Conversely, if you hold on too long, you may lose the profits that could have pushed your account balance into the green. Just like in sports, where sometimes every inch counts, the same is true in trading. If we are an inch too early with our execution, we could get stopped out, if we are an inch too late, we could miss out on profits. So, we have to grab that one inch with precision, or else, we won't be able to survive in the long run. The errors add up to a sum that makes the difference between net profit and net loss.
That means you cannot paralyze yourself in the decision of entering a trade; if you see one that fits your criteria, you hit the buy-sell button, don't overthink everything, you already thought when developing your strategy, now it's time for robotic implementation.
Also, there will be days where you can handle a lot of stress, and there will be days where you cannot look at your screen anymore because your body screams for a break. Don't force yourself to sit in front of the screen every day. Because at the end of the day, you have to enjoy what you're doing. You have to be happy to some extent to keep going, to maintain the consistency that the top of the world has already achieved.
4.Acceptance of Losers
This is another very important point. Not every trade is a winner; you have to learn to accept that sometimes you will have 5-10-20 consecutive losers, no matter how well thought out or sophisticated your strategy is. I don't mean just in one day, no. I mean you can lose sometimes for days, weeks, or even months. Accepting this crucial point and moving on to the next trade without thinking about the last one is something you have to learn. Being focused is a blessing when it comes to trading, and it is a skill you need to unlock. Even the best traders in the world have to deal with losses. The difference is that they deal with losses differently than we do.
Imagine your balance is $20,000 and you lost $2,000 yesterday; today, you are $2000 in profit. Will yesterday's loss influence you to break even? Or will you let your trade move to take profit? I know the feeling when you just hit breakeven after you have had subsequent losers; you think, "Okay, now I'm actually good, if I don't close this trade now, I could get another loser," and that's what stops us from making more profits. We don't want to feel bad again; it's a psychological barrier in our head, or our instinct of survival that tells us that this might be a good decision, but it's not. It's actually horrible; you take loss after loss after loss, but you don't allow yourself to make a profit. You are your worst enemy in that regard. So, next time when you're at breakeven, think about this.
5.Continuous Learning and Adaptation
Imagine you have a firm belief about company X; you strongly believe that this company will break its all-time high once again because you have done some extensive research, and you really believe that the price will go up. So you open a long position and wait. Next week, you see the market start to move down; you look for confirmation and indeed find confirmation for a short trade. Will you take the trade? Or will you stick with your initial idea and stay in the long trade? In trading, you don't have any friends; the market doesn't care about your feelings. The market does what it does, and if it's bearish, then it is bearish, regardless of your long trade. So, be flexible. Try to blend out your personal bias and just follow what the market is showing you. Be like water, adapt, and change your course according to the market environment.
6.Risk Management
I know we have all heard about this at some point, but I need to remind you once again that this is, if not the most important aspect of trading. Controlling your losses by setting a stop loss is important, and setting take profits to have a target in mind is also crucial. Without this, we cannot be successful. Without a stop loss, you cannot lose 20 times consecutively and without a take profit, you cannot win 20 times consecutively. You will be tied to one trade, one opportunity, which will force you to not be objective and to act emotionally all the time. We can't control anything that happens in the market, but what we can control is how much we want to lose and what our expectations for a winner are. Think of yourself as a company. Which company runs smoothly without a financial department? Mastering this will give you an edge that only a small number of traders possess.
Also, don't fall into the trap of thinking you can perform astronomically. If you make a consistent 40% a year, you're already among the best traders on this planet! Crazy, right? We often think that those guys must make hundreds of percent of gains, but in reality, the only difference is their trading balance. They usually aim for consistency, and we should strive for consistency as well! You can have a good month or a good year, but imagine having 10 good years. That is something that is incredibly hard to achieve in this ever-changing dynamic landscape.
I hope this helps you on your journey. This is just the tip of the iceberg. There are many books on trading psychology and trading tactics, and I would argue that mastering this skill is more important than having the right strategy.
We will all remain students of the market forever. Everyday will be a struggle for traders because everyday you have to face new challenges. Accept it. Move on.
Best regards,
Karim Subhieh
1.Set realistic goals
I remember entering the crypto scene in 2016. I was excited about the huge gains. Some coins were going up 1000% in one day. Back then, I thought to myself, "Man, if I invest $1000 in X coin and it performs 10000%, then I will have $100,000 easily, right,?" Little did I know, and as time went by, my holdings/trades performed positively, some even by a few 100%, but I was not satisfied. Because in my mind, my goal was 10000%, and that was my first mistake. I set myself an unrealistic goal and while this lesson was not directly related to my trading per se, it was an invaluable experience to learn.
But to further explain, in investing terms, we call this anchoring. Anchoring bias is a perception bias that arises when you are attempting to make a guess about something for which you have limited information. The best example of this is the “Jelly bean example”. Imagine you have a jar full of jelly beans, and someone asks you, "How many do you think are in the jar?" If he/she said, "Do you think there are 500?", would that influence your decision? Would you think of a number that revolves around 500? Often, we read news about our favorite investments; if someone said your favorite investment is going to be at $50, would that influence your target for a goal?
Nevertheless I could have won big, but my ignorance of what I wanted to win and my greed kept me from winning. So before you think about investing/trading, THINK ABOUT WHEN YOU WANT TO TAKE A PROFIT. The same way you think about setting a stop loss. Make yourself a realistc target based on logical research and avoid wishful thinking, this way you will be even happier if your trade exceeds your expectations and you will get a feeling of satisfaction instead of constant disappointment because your trades never hit your take profit.
2.Discipline and Patience
Investing/trading is an area where these skills are crucial.
"There is a time to go long, a time to go short, and a time to go fishing," Jesse Livermore once said, and that's perfectly true. Sometimes we are desperate for a trade, but we can't find any. Sometimes we find a ton of trades and begin to have anxiety due to the sheer number of opportunities. Sometimes we are desperate to make back our loss. Sometimes you open a trade, and it goes against you on the first day, but your overall analysis is correct. You can't close out a trade when a candle goes against you unless it's part of your strategy. Conversely, you can't open a trade just because you have a gut feeling about an investment; it has to fit your strategy criteria.
So the crucial question is the following; Will you have the discipline and patience to believe in your strategy no matter what? Long term or short term, there is no difference. You are your trading system; you have the power to make more money or to lose a little bit. You have to be patient enough to be able to sit on your hands if no opportunity exists and blend out your anxiety when there is an opportunity to grab. Be aware that there is no perfection in this game; there will be days when your trade turns into a loss or a loss into a profit, but staying disciplined in your approach is what will net you a profit in the end.
If your strategy does not work over 500-1000 trades. You can consider to move to the next one, and it wont be a loss because you have gained experience and insight, so you can work out an even better strategy for the next time while including previous mistakes. If you want, go for papertrading, but be aware that this will never reflect the reality of the emotions you would feel compared to a real account.
3.Emotional Management
What does this mean? Sometimes it's important to distance yourself from your emotions. This is extremely difficult and probably the hardest thing to learn when trying to trade. Because you and I are human, it's natural for us to have feelings of greed or fear, regret, and pain, but we must control these emotions to be successful. If you close a trade too early, you may lose the opportunity to catch the winning trade that will make up for all your recent losses. Conversely, if you hold on too long, you may lose the profits that could have pushed your account balance into the green. Just like in sports, where sometimes every inch counts, the same is true in trading. If we are an inch too early with our execution, we could get stopped out, if we are an inch too late, we could miss out on profits. So, we have to grab that one inch with precision, or else, we won't be able to survive in the long run. The errors add up to a sum that makes the difference between net profit and net loss.
That means you cannot paralyze yourself in the decision of entering a trade; if you see one that fits your criteria, you hit the buy-sell button, don't overthink everything, you already thought when developing your strategy, now it's time for robotic implementation.
Also, there will be days where you can handle a lot of stress, and there will be days where you cannot look at your screen anymore because your body screams for a break. Don't force yourself to sit in front of the screen every day. Because at the end of the day, you have to enjoy what you're doing. You have to be happy to some extent to keep going, to maintain the consistency that the top of the world has already achieved.
4.Acceptance of Losers
This is another very important point. Not every trade is a winner; you have to learn to accept that sometimes you will have 5-10-20 consecutive losers, no matter how well thought out or sophisticated your strategy is. I don't mean just in one day, no. I mean you can lose sometimes for days, weeks, or even months. Accepting this crucial point and moving on to the next trade without thinking about the last one is something you have to learn. Being focused is a blessing when it comes to trading, and it is a skill you need to unlock. Even the best traders in the world have to deal with losses. The difference is that they deal with losses differently than we do.
Imagine your balance is $20,000 and you lost $2,000 yesterday; today, you are $2000 in profit. Will yesterday's loss influence you to break even? Or will you let your trade move to take profit? I know the feeling when you just hit breakeven after you have had subsequent losers; you think, "Okay, now I'm actually good, if I don't close this trade now, I could get another loser," and that's what stops us from making more profits. We don't want to feel bad again; it's a psychological barrier in our head, or our instinct of survival that tells us that this might be a good decision, but it's not. It's actually horrible; you take loss after loss after loss, but you don't allow yourself to make a profit. You are your worst enemy in that regard. So, next time when you're at breakeven, think about this.
5.Continuous Learning and Adaptation
Imagine you have a firm belief about company X; you strongly believe that this company will break its all-time high once again because you have done some extensive research, and you really believe that the price will go up. So you open a long position and wait. Next week, you see the market start to move down; you look for confirmation and indeed find confirmation for a short trade. Will you take the trade? Or will you stick with your initial idea and stay in the long trade? In trading, you don't have any friends; the market doesn't care about your feelings. The market does what it does, and if it's bearish, then it is bearish, regardless of your long trade. So, be flexible. Try to blend out your personal bias and just follow what the market is showing you. Be like water, adapt, and change your course according to the market environment.
6.Risk Management
I know we have all heard about this at some point, but I need to remind you once again that this is, if not the most important aspect of trading. Controlling your losses by setting a stop loss is important, and setting take profits to have a target in mind is also crucial. Without this, we cannot be successful. Without a stop loss, you cannot lose 20 times consecutively and without a take profit, you cannot win 20 times consecutively. You will be tied to one trade, one opportunity, which will force you to not be objective and to act emotionally all the time. We can't control anything that happens in the market, but what we can control is how much we want to lose and what our expectations for a winner are. Think of yourself as a company. Which company runs smoothly without a financial department? Mastering this will give you an edge that only a small number of traders possess.
Also, don't fall into the trap of thinking you can perform astronomically. If you make a consistent 40% a year, you're already among the best traders on this planet! Crazy, right? We often think that those guys must make hundreds of percent of gains, but in reality, the only difference is their trading balance. They usually aim for consistency, and we should strive for consistency as well! You can have a good month or a good year, but imagine having 10 good years. That is something that is incredibly hard to achieve in this ever-changing dynamic landscape.
I hope this helps you on your journey. This is just the tip of the iceberg. There are many books on trading psychology and trading tactics, and I would argue that mastering this skill is more important than having the right strategy.
We will all remain students of the market forever. Everyday will be a struggle for traders because everyday you have to face new challenges. Accept it. Move on.
Best regards,
Karim Subhieh
KSC
