The Psychology of Trading

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What is a Trading Psychology Tailspin? The Psychology of TradingI think of a trading psychology tailspin as the transition from trading losses that you have accepted both as a part of your trading method, and as something that is inevitable in trading, into a surge of emotions that continually builds to a point where you can no longer accept anything. As this eventually ‘spins’ out of control – trading method becomes completely ignored, and is then replaced by emotional responses and decisions for everything that is done. Even if quitting was really the only viable thing to do at the time, the trading psychology tailspin can cause an emotional response where this isn’t even considered, until the situation becomes so desperate, that the trader can’t take it any longer AND does have to quit. This isn’t a discussion about emotions and trading, and the various fears and issues that keeps a trader from trading to begin with; as we know, emotions are an inherent part of trading – you learn to control them OR you can’t trade. This is a discussion about emotions that are typically controlled well enough so that you ‘can’ trade, but then something happens where the trader loses that control, and their emotions spiral. A series of consecutive losing trades, especially those caused by deviating from the trading plan, are a root cause for this happening. This also isn’t about something that happens only to inexperienced and unprofitable traders. There are going to be those times where nothing a trader does will work, and that result is going to be a series of consecutive losers. So the situation is the same, it’s the reaction that may be different. For instance, trader “A” may go into a panic causing them to spiral out of control, losing all self-confidence and self-trust, and ultimately more money than was intended. On the other hand, trader “B” may go into a period of revenge trading, coupled with an increase of their trading size, as they are ‘sure’ that each next trade is going to bring them back to even. Also, a spiral out of control, and the losses continue – AND also a loss of more money than was intended. So, what does trader “C” do? Don’t miss the next article to find out!]]>