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Trading Psychology - Patience and Discipline

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All humans (including new traders and professional traders alike) experience emotions (often whether they like it or not), and trading is one activity that can elicit many different emotions and rather strong emotionss (like many monetary activities). As a result, new traders and professional traders alike, should know that their emotions are going to affect their trading whether they like it or not. In response, professional traders either have or develop personalities that allow them to overcome their emotions and trade profitably. Two of the most important such personality traits are patience and discipline, because they allow a trader to handle one of the most difficult aspects of trading (i.e. waiting for their next trade).

Waiting For a Trade / Making Up a Trade

One of the most emotional times for a trader (particularly a new trader) is when their profit / loss is negative, and they are waiting for their next trade to come along. During this time they will be impatient, anxious, possibly angry, or sad, and they will be desperate to make their next trade in order to make back the money that they have lost. Most new traders (and also many experienced traders) will start taking trades that are not part of their trading technique or trading system (which is known as making up a trade). As soon as this happens, the trader's profit / loss will become even more negative than it was previously, and will continue to do so until the trader realizes what they are doing and corrects their (emotion based) behavior.

Accepting Your Emotions

The solution to emotional trading and the subsequent making up a trade is not to try and remove or control your emotions (good luck if you decide to try), but to develop character traits that allow you to control your response to your emotions. By developing a personality that counteracts your emotions you will be able to continue making logical decisions, even when your heart is pounding and sweat is streaming down your face (maybe this is a slight exaggeration).

Patience and discipline are vital personality traits for new traders and professional traders. Being patient allows you to wait for your next trade regardless of your current profit / loss, and being disciplined allows you to make only trades that are part of your trading technique or trading system (i.e. not making up a trade). For some traders, the thought of losing money is enough to make them instantly patient and disciplined (but they were probably already patient and disciplined beforehand), but for others, the emotions are too strong, and they need to cultivate their patience and discipline.

Trading Log

One method of learning how to be patient and discipline is to keep a detailed log of every trade that you take. At the end of the day (or week, or month), review every trade, and compare the reviewed trades from your trading log to the trades according to your trading technique or trading system. If there are any differences, you should be able to determine what caused them, and hopefully know what you need to avoid the next time your emotions start to take control of your trading.

Another method of becoming patient and disciplined is to have absolute confidence in your trading technique or trading system. Knowing that your trading stechnique or trading ystem will make money over the long term can be enough to overcome the negative emotions that occur when you are experiencing a negative profit / loss. The only way to have confidence in your trading technique or trading system is to test the trading technique or trading system thoroughly. If you have tested your trading technique or trading system over a significant length of time, and it is consistently profitable, there is no reason to question that it will continue to be profitable.

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