Trading Psychology For Dummies

Introduction

Trading psychology — the psychological basis of securities trading— generally isn’t taken very seriously, even though experts maintain that your emotions and your mental state are actually what determine the success or failure of your trading business. Those in the know are clear on this point: Trading is 80 percent psychology and 20 percent methodology. Trading is fundamentally a matter of character.

Trading — the common term for the short-term trade in securities, currencies, and financial derivatives — has become increasingly popular recently. Discount brokers especially have been seeing record numbers since 2020. They promise they'll make stock market trading as easy as pie with the help of their various trading apps. This has a certain attraction for a younger, less experienced generation and encourages gambling. But a word to the wise: If you're looking for an adrenaline rush and you think that leveraged products will make you rich overnight, you're sure to hit the rocks sooner or later. Trading in financial instruments is a sophisticated business and requires not only lots of patience and discipline but a clear head as well. You don’t stand a chance without a plan, a strategy, and processes you can rely on.

Regarding terminology, I'd like to make one thing clear from the start: When I say traders in this book, I'm referring to those private investors who independently invest their own money on the stock market at their own risk and on a short-term basis. The ...