Often when people talk about the importance of psychology, the need to be as unemotional in your decision making as you can be is frequently mentioned. Decisions are required often when trading and a fair percentage of the decisions that are required will be difficult.
Humans are naturally inclined to break the time tested trading rules and this is why your psychology and decision making are such a vital part of your success. Successful traders have great internal control and discipline to overcome the natural tendencies.
Trading the market is like running a business and anyone who has run a business successfully will tell you that emotions should have little place in your decision making. Trading successfully is all about decision making, although because of money and our natural instincts, many people cannot remove their emotions from their decision making process, sufficiently.
This is essential however. If your emotions have a great influence on your decisions, the chances are you will break the time tested trading rules. You will be inclined to not cut your losses and not let your profits run, for example.
To develop a trading plan and to then follow it requires some time tested character traits that lead to success in any endeavour such as commitment and discipline. These attributes will help you eliminate as much as possible the influence of your emotions over your decision making.
Developing a trading plan will also greatly assist as it will provide you something tangible to base your decisions on. Without a trading plan, you have nothing to base your decisions on except how you feel, which is largely governed by your emotions at the time.
One final thought about your emotions. If you buy something and it doesn’t move in the direction you were hoping, don’t get upset. Understand that it is a normal part of trading. Getting upset about it is not going to achieve anything, especially moving the share price back in your favour.
If anything, it will only cloud your judgement when making future trading decisions and potentially do you more harm than good.
Your emotions are a part of who you are and your decision making process. Decision making is a large part of trading, as you need to make decisions often and many of them are difficult decisions. Furthermore, people like to break rules, even ones they set themselves.
There are some simple trading rules that have stood the test of time, and will always work yet most people cannot follow them. It is essential that you realise how important it is that you demand of yourself the highest level of discipline to ensure you implement the requirements of your trading plan ruthlessly and follow some of the time tested trading rules.