Trading Psychology

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Most beginners believe that success depends on the right strategy or indicator. In practice, two traders can use the exact same rules and end up with opposite results. The difference is not in the market. It’s in how each person applies the rules and manages themselves.

When a trader is disciplined, calm, and follows the plan, the system works. When decisions come from fear or greed, losses are almost guaranteed — even with a perfect setup.

Success in trading is not about predicting the market, but about managing yourself.

That’s why trading psychology has become a core topic for both beginners and experienced traders.

Markets always involve uncertainty. Under pressure, the brain tries to simplify the situation and creates distortions. They feel logical but often lead to mistakes.

• Urge to enter just because the market is moving fast.
  
• Risk: buying at highs, skipping stop-loss.
  
• What helps: use the “two signals” rule. A trade is valid only with at least two independent confirmations. Keep a record of every FOMO trade.
  
  

• Often leads to panic selling.
  
• Mistake: locking in losses too early.
  
• Solution: set exit points in advance and rehearse negative scenarios.
  
  

• Emotional overheating after a trade or series of trades.
  
• Danger: impulsive entries and bigger losses.
  
• Fix: the “three mistakes rule.” After three emotional trades, stop for the day. Combine with breathing practice.
  
  

• Desire to catch every move.
  
• Consequence: exhaustion and account drain.
  
• Advice: limit the number of trades and instruments. Review which ones were unnecessary.
  
  

• Belief that after losses a win “must” come.
  
• Risk: taking trades without a plan.
  
• Fix: remind yourself that each trade is independent. Write down these thoughts in a journal.
  
  

• Feeling like a pro after a few wins.
  
• Danger: breaking discipline, ignoring risks.
  
• Practice: weekly reality check — what did you actually learn? Compare forecasts with results.
  
  

• First price or news influences thinking too strongly.
  
• Risk: ignoring new conditions.
  
• Fix: refresh analysis when new data appears.
  
  

• Looking only for evidence that supports your view.
  
• Risk: distorted market picture.
  
• Practice: search for arguments against your trade first, then for.
  
  

Brett Steenbarger is one of the most cited authors on trading psychology. His books are practical manuals, not just theory.

Trading Journal

Steenbarger emphasizes the importance of keeping a detailed trading journal that tracks both technical and psychological aspects.

• Technical section: entry, exit, stop-loss, and result.
  
• Psychological section: emotions before entry, thoughts and focus during the trade, and overall state.
  
  

Exercise: after each trade, note:

1. Your mood and level of confidence before entry.
   
2. What you felt when the market moved against you.
   
3. Why you decided to exit at that moment.
   
   

After a month of journaling, repeating patterns of behavior become visible — for example, closing trades too early out of fear or holding too long due to greed.

Emotions as an Indicator

In Steenbarger’s approach, emotions are not the enemy, but signals. A strong emotional spike is a sign of overload. That’s the moment to step back rather than act.

Exercise: rate your emotional state on a scale from 1 to 10. If it’s above 7, skip the trade.

Scenario Visualization

A trader should be prepared for multiple outcomes.

Exercise: before each session, run through three scenarios in your head:

• price rises,
  
• price falls,
  
• sideways market.
  
  

This reduces stress and helps you stick to the plan when the market behaves unexpectedly.

J. Rande Howell, author of The Mindful Trader (often translated as The Mindful Trader: Mastering Your Emotions and the Inner Game of Trading), focuses on mindfulness and working with internal states.

5-5-5 Breathing

A simple yet powerful technique to calm down before trading.

• Inhale for 5 seconds.
  
• Hold for 5 seconds.
  
• Exhale for 5 seconds.
  
  

Repeat several cycles before starting your trading session.

Rewriting Fears

Many trading mistakes are driven by fear of loss. Howell suggests reframing the fear instead of fighting it directly.

Exercise:

1. Write down your fear: “I will lose my account.”
   
2. Reframe it into a rational statement: “I will lose a maximum of 1% — that’s part of my system.”
   
   

This transforms anxiety into something measurable and manageable.

Observation Without Judgment

One of Howell’s key ideas is learning to observe the market neutrally, without attaching emotions.

Exercise: phrase events in factual terms. Instead of “the market crashed,” say “the price dropped 3%.” This keeps you objective and prevents panic or euphoria from dictating decisions.

⚡ Combined, these two authors give traders a practical toolkit: Steenbarger helps identify and track emotional patterns, while Howell provides mindfulness techniques to manage stress and regain control.

• Alexander Elder — Trading for a Living. Combines psychology, technical analysis, and money management.
  
• Mark Douglas — The Disciplined Trader. Focuses on reshaping thinking.
  
• Jack Schwager — Market Wizards. Interviews showing how pros handle psychology.
  
• Nassim Taleb — Fooled by Randomness. Why people overestimate patterns and underestimate randomness.
  
  

Crypto markets amplify biases:

• FOMO: buying at peaks.
  
• FUD: panic selling during crashes.
  
• Euphoria: believing growth will last forever.
  
  

What helps:

• set a stop-loss before entry,
  
• apply the “three mistakes rule,”
  
• keep a strict daily loss limit.
  
  

• Keep a journal for trades and emotions.
  
• Check your emotional state (1–10 scale).
  
• Do 5-5-5 breathing before sessions.
  
• Reframe fears into rational statements.
  
• Stop trading when tilted.
  
• Place stop-loss before entering.
  
• Review mistakes daily.
  
  

Can I download books for free?
Yes, PDFs exist, but official editions are more reliable.

Where to read online?
E-libraries and publisher websites.

Are audiobooks available?
Yes, Steenbarger and Douglas have audio versions.

Which books are best for beginners?
Elder, Douglas, and Schwager are the top picks.

Psychology matters, but in algorithmic trading its impact decreases. In MoonTrader, trades are executed according to pre-set rules. Emotions don’t drive the process — strategy and analytics do.

Algorithms make it possible to focus on analytics and strategy development rather than struggling with inner states. This allows traders to develop systematically and reduce the impact of psychological mistakes — try it.

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