Andrew Hall was once the best oil trader in the world. In the financial crisis of 2008, the financial world was stunned when Citi paid him more than $100 million for making the firm an unprecedented amount of money, at a time when many competitors suffered losses. But in 2017, Andy Hall shocked the market once again when he closed his hedge fund after years of losses. Ironically, after Hall closed his fund, oil prices started to rise again. This example shows that even top traders can experience losses.
Therefore, as a trader, you should understand that you will too. We all do. The question is, how can you deal with losses and grow your trading career? This article highlights five tips for mastering your trading psychology, to make you better prepared for any setbacks you might encounter.
1. Hope for the best, prepare for the worst
When you open a trade, you should always hope for the best. You should be confident that your analysis was correct and that you will hit your price target. In short, you should always be optimistic. However, you need to always be prepared for the worst. When you are prepared for the worst to happen, it will help you avoid making huge losses, whatever happens in the markets. You can be prepared by setting a stop loss, by opening small trades, and by using a small amount of leverage.
2. Have a trading journal
A trading journal is a physical or digital record where you document all your trades. This will include the trades that you open, the reason for opening them, the profit or loss, and the reason for closing them. Many traders ignore this important concept, which has been used successfully by Warren Buffet for decades. There are many journal apps that can help you with this.
3. Reading books
As a trader, reading is essential. The more you read, the more you will be successful. You should find books on trading and investing and set aside time to read as much as possible. This will enable you to learn from the experience and expertise of previous investors. As well as physical books, you can also buy digital versions of many trading books. Some of the titles you should start with are Sheelah Kolkhata’s Black Edge, Guy Lawson’s Octopus, and Kathy Lien’s Millionaire Traders.
4. Start your day well
The way you start your morning will determine how successful you will be. This is a rule that is applicable in virtually all industries. Before you start your trading, it is essential that you ensure you in a good mental place. If you are distracted, unhappy or angry for any reason, relaxing and clearing your mind will help you to regain focus on your trading.
5. Interact with your peers
Successful investors understand the need for peer interactions. That is why many are willing to pay to attend training and networking events, or to attend an audience with a famous trader. The events where other traders meet can be excellent venues for you to learn more about the industry. You will listen to their mistakes and learn from them.
There are other ways you can boost your psychological wellbeing such as dedicating time for relaxing pastimes, trading for a short duration of the day, and having a mentor. As you will realize, being prepared will help you achieve more success as a trader. It will also help you avoid becoming depressed when you encounter losses, which can make you trade less effectively.