Psychology in trading - When the mind is your own enemy. (original article)

In trading, psychology, money management (position sizing) and trading system are of great importance. Most people turn their attention to the trading system and its development, but more and more spoken traders suggest that in trading the importance of the three elements is divided as follows: psychology 60%, money management 30%, system 10%.

When discussing trading activity, we must point out that the emotional aspect is an element that can make the difference between profit and loss. Generally speculators, especially beginners, deciding input / closing based on their own feelings (and not valid arguments, logical and based on coherent analysis). There appears to be a desire to win, the hope that the price will start to move in your favor, the fear that a potential loss will deepen, the inability to accept a loss at some point. That is why the speculator should try to eliminate, as much as possible, the emotional factor in the trading activity. It is not easy, but not impossible.

As in many areas of life, the mind can play against us. I have often heard the inner voice telling us: sell now, because the price will drop! Finally, I noticed that I made the biggest mistake by paying attention to the inner voice, because the price of cryptocurency has increased further.

How do we keep our emotions, how do we keep the level of stress at the lowest level, and especially when we have to ignore our inner voice? These issues, which are part of the trading psychology, are neglected both on the Stock Market and on the Crypto Market.

Well, there are some solutions for emotions and inner voice not to work against us.

1. Discipline
   Discipline means not to deviate from the transaction plan. Any transaction must have a plan. I recommend you do not make a transaction until you have a plan. The plan includes: the entry price, closing the position if the price does not move in the direction we anticipated and the closing of the profit position at a certain price. All this is done before you start buying. If you notice that the transaction does not evolve in a positive direction, sell at the price set in the plan. It is better to have a loss of 5-10% than to have a later loss of 40-50%. Also, when setting the sale price, on the transaction plan, make sure it is realistic, not fanciful. Whatever happens, you will not deviate from the original plan.

2. Meditation
   Peace inside is beneficial in trading. Before starting the session you trade it is good that for 10-15 minutes you will empty your mind. You can do this by any technique of yoga or other forms of meditation. You will see the benefits of these forms of mental relaxation when you start your trading session. These techniques will help you stay calm and see a transaction more clearly.

3. Ignore the inner voice.
   Inner voice is one of the greatest challenges of a trader. This will permanently remind you of the mistakes you have made in the past and will often urge you to sell before the price set in the transaction plan. Ignore the inner voice and respect the plan of the transaction. Also, the inner voice will urge you under the influence of greed, to open a trading for which you do not have a plan. Point 2, that is, the meditation you did before the trading session will greatly diminish the power of your inner voice.

We can not conclude this article about psychology in trading without talking about "FOMO" and about "Hope mode,,.

"FOMO," is Fear of Missing Out (fear of being left out). In trading, it translates to the fear that it will not stay on edge when the trend begins to rise. At that point, we have a strong desire to buy to benefit from the rising trend. We do not have to let go of FOMO. The market has strange moments in which it is better to stay on edge. If you look at a historical chart and the price is cheap then you can buy. But before you buy make your plan for that deal. If the price is the most expensive when looking at a historical chart, it is good to sit on the edge. Whenever this trend up can become one down.

"Hope mode," is one of the most destructive mental settings and can lead to serious earnings losses. Suppose a trading evolves negatively. Instead of selling at the price we set in the trading plan (-5-10%), we begin to lie ourselves hoping the price will rise. We think the price will go up and we do not sell. This way, we can make a 30-40% loss on that trading.

As you can see a beginner trader has a lot of challenges. Time, discipline and experience will lead to better management of these trading challenges. Once experienced, the inner voice will be ignored and the emotions will be at a minimum. Undoubtedly the technical analysis, money management and trading system must be known by the trader, along with the psychology in trading.

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