Tuesday, October 9, 2007

Stock Trading Psychology

A key strategy and habit to successful stock trading is the ability to take losses comfortably. The stock market is not stable, it never was and it is not likely to be. This requires the trader to have proper stock trading psychology. Due to the unpredictable nature of stock trading, the trader must be able to face the prospect of unexpected losses. Even the best traders will eventually run into some loss making situation, there is simply no way to avoid it. The only thing is to be prepared and watch out for the signs that indicate imminent loss.

Stock trading psychology indicates that traders tend to become perfectionists when they face a loss. All traders assume that every single day will end in profit when that is simply not true. A good day in stock trading is not defined by profits at all. Instead, experts in stock trading psychology define a good day as one that is researched and planned and follows an overall trading strategy. Planning is the key to facing and walking out of a loss and also the key factor that enables the trader to accept loss as a part of the game.

Stock trading psychology suggests that a trader focuses on what is within control. In this unpredictable market there will always be random factors that can lead to frustration and despair. Do not focus on things beyond your control. This essentially means that neither profits nor losses are exactly in your control. You are always playing against a market that has a mind of its own so you have to be able to understand this. Your control is limited, so focus on that.

Within this control is your freedom to fully understand the stock market and develop the right strategies. Use every experience to refine these strategies and come up with a strong trading plan. The more you understand your own strategies, the better results you will achieve.

The stock trading market is no place for perfectionists. Instead, you must train yourself to be realistic. A perfectionist will always see a small loss as an overall failure and that is bad stock trading psychology. This eventually leads to obsession with failure. The realistic traders understand that loss is just part of the market and they have to face it eventually. Instead of focusing on failure, you must focus on limiting your losses. A trader that becomes obsessed with failure will find it next to impossible to bounce back and even the best strategies will not be able to get that trader back into the profit zone.

Stock trading psychology experts recommend 3 strategies for effectively stopping losses. These are called Price Based, Time Based, and Indicator Based strategies.

Priced Based stops simply involve a low point beyond which you will cut your losses and quit the trade. Time Based means you wait for a specified time to make a profit and if the time expires you quit. Indicator Based strategy uses market indicators. This requires some experience and you will eventually be able to pull out based on indicator movement.

Alan King is a writer that concentrates on helping people better themselves, for cutting edge information you NEED to know about stock trading before you try to cash in on this multi TRILLION dollar industry I strongly suggest that you check out my friend Mark Crisp's awesome free 9 page e-book at http://www.stressfreetrading.com