In my personal opinion, I would say that stock trading is about 80% psychology and discipline and only 20% strategy and analysis. This may comes as a surprise to some new traders, but others will likely agree that keeping your emotions under control while trading is absolutely crucial to stock market success.

The unfortunate reality is that many aspects of trading psychology can only really be learned through experience. For example, I can tell a new trader to “cut losses quickly” a million times, but they will still probably be hesitant to cut losses until they feel the pain of holding onto a losing trade far too long and taking a big loss. With that being said, I wanted to some tips revolving around stock trading psychology that I think new traders can follow without having to learn them the hard way!

Tip #1: Avoid being greedy. I know… easier said than done. At the end of the day, we’re all in the market for the same reason; we want to make as much money as we can. With that in mind, it’s often easy to get greedy while you’re in a winning trade. You already have profits but, of course, you want more! This is a feeling that we must block out. Don’t get me wrong, there’s nothing wrong with letting your winners run if everything is going according to plan, but when the market is giving you signs that it’s time to exit and lock in your profits, it’s just being greedy to continue holding at that point.

Tip #2: Don’t panic! As a trader, you will have to experience losses. Everyone does… even the best of the best. When it comes time to take a loss, it’s important to avoid panicking. Many new traders will lose their cool when their position starts to go red and this causes them to trade based on their emotions rather than their strategy and their plan. A plan should ideally be made before each and every trade. That plan should consist of a profit target and a risk level. The risk level is where you’ll cut losses if the trade happens to move against you. By having this price in mind before even entering the trade, you won’t panic if the stock reaches that level. Instead, you’ll simply cut your loss by following your trade plan and by doing so you’ll also be managing your risk in the market.

Tip #3: Avoid FOMO. FOMO = Fear Of Missing Out. We all experience FOMO in many aspects of our life, not just in trading. For example, if you know a group of your friends are going out while you’re busy working, you may experience FOMO. While trading, FOMO can cause inexperienced traders to force a trade because they don’t want to miss out on potential profits. This is extremely common when there are stocks making big spikes. It’s crucial to avoid FOMO and only open a trade if it meets the specific criteria of whatever strategy you may be using. A great way to avoid FOMO is to simply look away from the market when there are no great setups. Turn off your computer and log out of any trading apps on your phone. This way you can’t end up forcing a trade! Trust me, if you’re searching for a trade you’ll always find one… it just may not be a great one.

Tip #4: Avoid revenge trading. Revenge trading is when you get into a trade after a loss and your mindset going into the new trade is along the lines of “I need to make back $200 to make up for my last trade.” When doing this type of trading it is very easy to then become greedy. The reason is because if you know you want to make back $200 to cover your recent loss, then you’ll probably ignore the signs telling you to exit your position while you’re only at $100 in profit. This is why I often like to take a day or two off after taking a big loss. It gives me time get over it and lets me come back to the market with a refreshed mind. I can then get back to trading with a clear mind, rather than revenge trading and trying to make back the loss.

Tip #5: Don’t add to losers! One thing that many new traders do, but no professionals do, is add to losing trades or, in other words, “average down.” Averaging down can be tempting. For example, if you bought 1,000 shares at $1.50 and the stock was down to $1.30… by adding another 1,000 shares at $1.30, your average price would now be $1.40 instead of $1.50. Then, you would only need the stock to bounce $0.10 to be back to breakeven, rather than $0.20. Sounds great, right? In my experience, averaging down will almost always create a larger loss. Even though you’re decreasing your cost per share, you’re doubling your position size and essentially doubling your risk. Instead of averaging down, you’d be better off cutting your losses on your initial position and simply re-buying at a lower price.

Keep these 5 tips in mind while you’re doing your trading. I can confidently say that I’ve learned all of these lessons the hard way while I was learning to trade. By following these tips, you can take a lot of the psychology and emotion out of your trading and instead trade based on your strategy and plan… the way it should be!

Thanks for reading and good luck!





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