Trading* in the world of stock market is not only about buying and selling based on index movements, but also a good psychology management strategy. The term trading psychology refers to the mental state of a trader** when they have to make decisions that lead to profits or losses.
This aspect of trading is often overlooked. But in fact, psychological management is just as important as other attributes such as technical and fundamental analysis. When emotions are left overflow, traders tend to fail despite having the proper skills.
Trading Psychology Management
A trader must be able to manage panic, stress, frustration, and even lure and euphoria. Such emotional biases can hinder traders from achieving their investment goals.
Here are 5 trading psychology tips to increase the potential for success.
1. Develop a Trading Plan
It is important for traders to create a proper decision-making framework. A trading plan outlines a trader's approach to trading activities, including risk management and other key factors that influence performance. Developing a long-term trading plan can prevent impulsive actions from leading to mistakes.
2. Make Realistic Targets
It is important to have the confidence to take risks and accept the consequences of those risks. To create realistic targets, traders can do as much research as possible and practice through demo trading accounts. This also includes a mindset that is oriented towards making profits, not avoiding losses.
3. Don't be Overconfident
Slightly contrary to the previous point, overconfidence will make traders always feel self-righteous. A good trader should always be careful not to get caught up in biases, public opinion, or their own subjective views. To overcome this problem, traders need to get guidance from other more skilled traders to keep cultivating realistic assumptions about the market.
4. Learn from Mistakes
Traders who understand the psychology of trading will not dwell on their mistakes, but learn from them. After a loss, it is better for a trader to take a break rather than rush to make new decisions. They can control their emotions first and start analyzing their previous trading activities to apply in the future.
5. Stay Disciplined
Trading requires a great deal of discipline and self-control as it is often faced with emotional and psychological challenges. The main way to stay disciplined is to stick to your trading plan. Once you deviate from the guidelines, you may end up making irrational and harmful decisions.
* Trading is a word that often used in financial markets, including stock or commodity markets, which means active trading activities (buying and selling) within one trading day. The frequency of such transactions is generally above 3 times.
** Trader is defined as the person who conducts the trading activity.
Disclaimer: The content is made for educational purposes, not a recommendation to buy or sell a particular stock. PT KAF Sekuritas Indonesia is licensed and supervised by the Financial Services Authority (OJK).