Stocks Psychology Principles

Trade with the stocks trend only

Stay focused on the large market trends and do not try to react to every stocks price action move. "The stocks trend is your friend!" follow it. Investors need to follow the stocks trend when stocks trading online. One of the principle of market psychology is to always trade with the trend.

Most beginners will enter the stocks market when the price chart shows a steep movement. These traders don't even take the time to understand what forces are causing such a movement and thus make the mistake of being too eager to enter the stocks market; they want to rush and be the first ones to enter the stocks market after an economic data is published, without any regard to the direction of the trend only to finally realize that it was just a stocks whipsaw when they are already in a losing position. In such situation, most seem fearless, not fearing making losses and only worrying that others are making profit while they sit on the sidelines. In Psychology this is the opposite of what they should be doing. In your plan you should write clear guidelines within their stocks plan on how to avoid this type of mistake.

In Stocks, the rule is to never be too eager to enter the stocks market; learn to overcome the feeling of worrying that you will be too late to make a profit. Take time to analyze what's the impact of the economic data released.

Sometimes this breaking news does not dictate the forecast of the likely direction. You have to analyze carefully if it will have a big impact on the stocks prices. Most often, these data gives false entry signals.

It is important that you overcome your eagerness to be the first one to enter the stocks market using Stocks Trading psychology. You have all the time to analyze the impact of this breaking news before you enter the stocks market.

It might take more time but your trades will be moving in the right direction. This is what we call following the trend.

Trade with a disciplined Stocks Trading plan

Investors should not base their positions on a just a hunch. Positions should only be executed using a well organized plan. The plan should specify the rules of entry and exit. Use the psychology section to specify your trading mindset when opening stock trades.

Investors should examine all of the factors carefully before opening a position and they should not let fear or greed or someone else's influence to cause them to enter or exit a position before their stock trading system gives a signal. Don't let temporary circumstances erode your convictions, use discipline to follow your plan.

Using a consistent and disciplined plan eliminates the need to make rush decisions based on short-term stocks price action moves.

Cut your losses and let your profits run continuously

Some investors hold on to losing positions for a long time in the hope that these positions will move in their direction after some time. However, this never happens and the stocks market keeps moving against these losing positions and makes them lose even more.

The other mistake that investors make is to not take the profits at the opportune time, all investors should try to maximize profit per trade but at the same time be aware when the stocks trend changes and close positions at that time and not wait while their positions in the stocks market are open. Only keep positions as long as the stocks trend is in place and close once the stocks trend shows signs of slowing.

Losing Stocks Trading investors see loss as failure. Winning investors see loss as a learning experience, this is one principle of psychology which helps them improve their profits.

When winning traders make a loss, they haven't failed, they've just learned something new about the way the stocks market works. Winning traders always look at the big picture and stick to their Stocks Trading plans.

Many stocks traders in a losing position wait for the best time to cut a loss. However, the best time to exit never comes and the transaction continues to lose money. The best time to exit is when the loss is low i.e. less than 30 pips but not when the loss is hundreds of pips. Your account may be wiped out while still waiting for the stocks trend direction to move in your favor.

A losing position from the start is likely to stay like that - Popular Saying by Investors.

Use psychology and learn to cut losses and avoid holding onto losing positions because of the hopes that the stocks market will move in the other direction. There is always a new opportunity to trade as long as your margin is not tied up in a losing position.

An investor should get released from a negative psychology and apply the money to do another stocks transaction. An investor should cut the losses quickly and move to profit making positions. Some investors will end up sitting on a losing position; they usually allow the stocks price to move against their position many pips while hoping that the stocks trend direction turns and goes back in their favor.

Profits are made when trades are closed not when they are opened, therefore be ready to close your positions as many times as possible.

It is a wrong belief that each transaction will gain profits. One can still make money even if only half of his transactions are profitable. The question is how an investor can make profit with only half of his transactions winning, the answer is that one should keep the losses at a minimum and open other profitable trades. This way greater number of profit transactions offset the losses.

To learn more about psychology and how to transform your mindset using a Stocks Trading plan go the lesson Stock Plan.

Stocks Plan - Psychology Section