Lesson 1

WHAT IS TRADING PSYCHOLOGY?

Trading psychology refers to the emotions and mental states that help dictate success or failure
in trading. Trading psychology represents various aspects of an individual’s character and
behaviors that influence their trading actions. Trading psychology can be as important as other
attributes such as knowledge, experience, and skill in determining trading success.
(POINTS TO COVER)
Discipline: Regardless of your respective goals, Discipline is at the pinnacle of success.
Discipline is the ability to stick to a set of rules and YOUR trading plan, regardless of outside
noise or circumstances.
Risk-taking: Understanding risk in any given market will allow you to maximize profits while
minimizing losses. This will also be covered in the Technical Analysis section! By risk-taking, we
have to understand fear and greed. Greed drives decisions that appear to be too risky. Fear
drives decisions that appear to avoid risk and generate little return.
Emotions: Emotions help explain why some decisions appear more rational than others.
Common unhealthy emotions that you may need to try to identify in yourself could be... 1.
Scared of losing money 2. Feeling incompetent 3. Too optimistic
(KEY TAKEAWAY)
If you are incapable of changing the way you approach trading, from all that will be included in
trading psychology, trading is not for you.

Lesson 2

UNDERSTANDING TRADING PSYCHOLOGY

There are specific emotions that are commonly brought out when associated with money and
these are often catalysts for behaviors leading to a bad fortune in market trading.
Emotionally-driven behavior in markets ascribe to either fear or greed.
Greed can generally be described as an excessive desire for wealth, so excessive that it clouds
rationality and judgment at times. Thus, this characterization of the greed-inspired investor or
irrational trading proves that the greed emotion can lead traders towards a variety of unsafe
behaviors. This may include making high-risk trades, buying shares of an unrecognized
company or technology just because it is going up in price rapidly, or buying shares without
researching the underlying investment. Another example of how greed affects choice is how
retail investors commonly stay in profitable trades longer than advised, or go against their
trading plan, in an effort to squeeze out extra profits or to take on large speculative positions
with really no Risk/Reward structure.
Fear on the other hand, can cause traders to close out positions prematurely or to refrain from
taking on risks because of concern about large losses. Fear is most evident in bear markets,
and it is a potent emotion that can cause traders and investors to act irrationally in their attempt
to exit the market. Fear often morphs into panic, which generally causes significant selloffs.
Luckily if you are able to become neutral to the state of the market, you can trade both
directions and never feel uneasy. This will be discussed more in the Technical Analysis section.
(KEY TAKEAWAY)
STICK TO A PLAN! Having set rules outlining your goals will help eliminate irrational thinking or
otherwise allow you to quickly identify your wrongdoings.

NOTE: This is a great video I've kept since the start of my trading journey!
https://www.youtube.com/watch?v=Oqb_rz7Vk8Y&t=1821s

Lesson 3

0 STEPS TO BETTER DISCIPLINE!

[8:08 PM]
1. Have a trading plan and stick to it. Your trading plan should outline and document your return
expectations. (I aim for 40% a month), how you will approach the market depending on
conditions, the maximum amount you will risk per trade, the profits and losses of your capital.
Having a trading plan allows you to stay within neutral grounds of thought to always adhere to
your rules regarding risk and reward. (I use 3 to 4% per 1% but this will be spoken about further
in Technical analysis).
2. Never invest or trade without adequate homework. You need to understand the
macroeconomy, the sector in which the company operates, and the specifics of the company,
news flows, market direction, market strength, and what other outside happenings may also
affect what you are trading or investing into. (for example, before trading a certain
cryptocurrency I will look at news, then market strength and direction, then sector performance,
and only then will I even look at what I am planning on trading.)
[8:08 PM]
3. Let your investment be part of your larger financial plan. This should apply to everyone who
may be currently day trading. When you find yourself making progress, do NOT continue
playing with larger sums of money as your account size grows, rather create two accounts, one
for trading and one for investing. If you get to the end of all of this education you will soon learn
in further detail about risk management. Although for now, try to structure your trading plan
around a particular size of capital in order to mitigate the risk of losing profits in the early stages
of trading. Therefore if you have done the research before trading particular securities, you may
already have a good idea of what you may want to invest in for the long term. (For example, I
have many friends who day trade the s&p 500, although they take most profits and DCA into the
s&p 500 for the long-term.)
4. When in doubt step back. This may go against the point of trading/investing although is super
helpful when implemented. All trades need to be back by conviction. Unless that is taken care
of, emotions and speculation clog your ability to think clearly. If you feel as though market
conditions are too overwhelming, your decision-making is speculative, or for any other physical
or mental reason, just step back. (For example, I recently took a break for several months due to
a health condition affecting my brain lol.)
5. Pennies > Pounds. Small decisions matter in the long run. Do not try to make back what is
lost ever. Always stick to your trading plan and never get carried away. For example over trading
to recover losses. This is why I suggested keeping track of trading costs and P&L every day as
well as the number of trades, because over time if the issue becomes consistent in times of
struggle, this can become such a big issue you will blow your account and be put off trading for
a long time.
[8:08 PM]
6. Honor your stop losses. The whole point of your stop loss is to minimize the downside and
allow you to take a fresh view of your trade later. The loss is the cost you have to bear to stay in
the trading game for the long run. If you do not maintain this discipline, then you will see your
account size diminish right until its empty. Stick to your trading plan! (Most of the time I only risk
1% per trade.)
7. Honor your profit targets. On the other hand, honoring profits is equally important. Many can
have luck in breaking their targets, although if your profits are to diminish, that's when those
negative emotions set in, and you may find yourself exiting at a loss, all for being in the trade for
much longer. (I usually do 1 or 2 TP targets or sometimes a trailing stop depending on my
goals.)
8. Cut your coat according to your cloth. Make sure your risk appetite is in tune with your
loss-bearing capacity. You do not want to wipe out half of your account on one trade. Make it a
point to always manage risk according to your trading plan and your own personal capacity.
Regardless of account size, Percentages don't lie, so manage your risks according to what you
can afford to lose.
[8:08 PM]
9. Read more, think more, chat less, watch less. One of the best indicators of how disciplined
you are is judged by the way you utilize your spare time. If you want to really instill discipline in
yourself then avoid spending too much time on places commonly used to mislead and cloud
your thought. That typically shows a lack of focus. Don’t waste too much time watching
television or listening to the market opinion expressed on TV. They really do not amount to
anything useful and are 99% of the time wrong. Use your time reading up on emerging trends,
scanning leading websites for articles and blogs. Try to spend a lot of time crystallizing your
trading ideas and reviewing the pros and cons of your performance.
10. Discipline must reflect. It is said that discipline is not a process but a habit. It is hard to be
disciplined in trading if you are not disciplined in other walks. The way you organize your
paperwork, the amount of clutter on your table, the way you take care of your health, the way
you keep habits in check; all these points towards discipline as a way of life. If you want to be
disciplined in trading then you need to bring discipline into every aspect of your daily routine.
(KEY TAKEAWAY)
Building on what we have previously learned, there is more to trading than charts. Discipline is
another evident factor to a successful trader/investor.

Lesson 4

UNDERSTANDING BEHAVIORAL FINANCE

The reason why traders are successful is that they understand what others would do and act
accordingly. The reason why 96% of traders fail is that they are just a money grab for the 4%
that are just a couple of seconds ahead of them. Markets don't move simply because a chart
said so, they move because of the behaviors of retail investors. Money doesn't come out of thin
air, and traders only win by making 96% lose.
Part of trading psychology is to understand why exactly do individuals make irrational decisions
in the market. Behavioral finance proposes that psychological influences and biases affect the
financial behaviors of investors and financial practitioners. Moreover, influences and biases can
be the source of explanation of all types of market anomalies, specifically those in the stock
market like severe rises or falls in stock price.
There are 5 main concepts. (I will copy and paste the definitions and explain).
Mental accounting: Mental accounting refers to the propensity for people to allocate money for
specific purposes. (Thinking without particularly much logic).
Herd behavior: Herd behavior states that people tend to mimic the financial behaviors of the
majority of the herd. Herding is notorious in the stock market as the cause behind dramatic
rallies and sell-offs. (This is the clear example of the 96% ers)
Emotional gap: The emotional gap refers to decision-making based on extreme emotions or
emotional strains such as anxiety, anger, fear, or excitement. Emotions are often a key reason
why people make irrational rational choices. (Many reasons have already been given although
this is proof for a need to have a trading plan!)
[8:09 PM]
Anchoring: Anchoring refers to attaching a spending level to a certain reference. Examples may
include spending consistently based on a budget level or rationalizing spending based on
different satisfaction utilities. ( Another example of thinking without much logic).
Self-attribution: Self-attribution refers to a tendency to make choices based on overconfidence
in one's knowledge or skill. Self-attribution usually stems from an intrinsic knack in a particular
area. Within this category, individuals tend to rank their knowledge higher than others, even
when it objectively falls short. ( This is simply EGO).
(KEY TAKEAWAY)
Understanding the behaviors of others will give you the edge necessary to be that 4%. At least
being able to identify negative behaviors in yourself will allow you to improve when you actually
get to trading.

NOTE: This presentation is another video I have kept. This will give you a wide view of the
economy relative to trading. (Please have a pen and paper!).
https://www.youtube.com/watch?v=chSHqogx2CI

Lesson 5

HOW TO IMPROVE YOUR TRADING PSYCHOLOGY?

[8:10 PM]
Improving your trading psychology can most easily be achieved by becoming aware of your own
emotions, biases, and personality traits. Once you have acknowledged these, you can put a
trading plan in place that takes these factors into account with the hope of mitigating any effect
that they might have on your decision-making.

As an example, if you are a naturally confident person, you may find that overconfidence and
pride hamper your decision-making. For example, you might let losses run in the hope that the
market will turn around, rather than incurring a small loss on your trading account. This could
lead to greater losses or the eventual collapse of your trading account.

To counter this, you might use stops as a way to minimize your losses and to make the decision
about when to close a particular trade before you open the position. By doing this, you have
become aware of your own biases and emotions as you have made a conscious decision not to
act on them but rather, you have taken steps to combat them.
[8:10 PM]
HOW DOES BIAS AFFECT TRADING?
Bias affects a trader by definition by having predetermined thoughts or ideas in favor of one
outcome over another.
This may hinder your decision-making because it can lead you to act on gut feeling rather than
fundamental and technical analysis.
Examples of specific decisions it may affect include:
-When to enter a trade
-When to exit a trade
-What to trade
-How many trades to take
-When to stop trading for any given amount of time
There are 5 main types of bias. (I will copy and paste by definition then explain).
-Representative bias means that you will stick to or be more inclined to replicate previously
successful trades. You might do this without carrying out analysis for every trade of this type
because in the past, it has paid off for you. However, even if two trades seem similar, it is
important to approach every trade on its own merits rather than on historical success.
-Negativity bias makes you more inclined to only look at the negative side of a trade, rather than
acknowledging what went right. This could mean that you scrap an entire strategy when, in fact,
you might only have needed to tweak it slightly to turn a profit
-Status quo bias means that you will continue to use old strategies or trades rather than
exploring new ones – you will stick to the status quo. The danger arises when you fail to assess
whether those old methods are still viable in the current market.
-Confirmation bias is when you seek out or give greater weight to, news and analysis that
confirms your pre-formulated ideas. It may also be that you don’t seek out, or disregard,
information that disproves your convictions.
-Gambler’s fallacy is where you assume that because an asset has been increasing, it will
continue to rise. There is no reason to believe that it should, similar to how there is no reason
that a coin should land tails side up – rather than heads – after doing so a few times in a row.
[8:10 PM]
(KEY TAKEWAY)
The ability to fully understand your own behaviors is equally important as understanding others.
Lesson 6

6 TIPS TO AVOID EMOTIONAL TRADING

1. Identify your personal traits. developing successful trading psychology is identifying your
personality traits mostly before trading with real money. Honesty is the best policy, and
understand if you have impulsive tendencies or if you are prone to acting out negatively. It is
vital to keep these negative traits at bay to avoid ill-advised decisions with little analytical
backing. On the other hand, playing to your personal strengths can help you get an edge. For
example, patience and calm and calculated mindsets need to be found during your time in the
market. Equal to personality traits its recognizing your biases, as listed in the previous lesson.
You should be aware of what your individual biases are before opening or closing any trades.
2. Have patience. Acting out of fear or greed can lead you to miss out on profit by closing too
early or too late. Trust your analysis and remain patient and disciplined. Trying to squeeze out
profits after your targets isn't patience, it is greed. Equally, when looking to enter a trade, it is
important to be patient and wait for the right moment rather than just jumping into a trade right
then and there.
3. Be adaptive. While it is important to have a trading plan, remember that no two days on the
markets are the same, and winning streaks don’t exist in trading. With this in mind, you should
become comfortable in assessing how the markets are different from day to day and adapt
accordingly. If there is more volatility on one day compared to the day before and the markets
are moving particularly unpredictably, you may decide to put your trading activity on hold until
you’re sure you understand what is happening. Being adaptive can help to limit your emotions
and rule out representative and status quo biases, enabling you to assess each situation on its
own merits – ensuring that you are pragmatic during your time on the markets.
[8:13 PM]
4. Take a break after a loss. Sometimes after a loss, the best thing you can do is walk away
from your trading account for a short while to gather your thoughts and compose yourself, rather
than rushing into another trade in an attempt to regain some of your losses. The best traders
are those that take their losses and use them as learning opportunities. They will typically take a
few minutes to themselves before going back to their platform, using this time to assess what
went wrong for that particular trade in the hope that they might avoid making the same mistake
in the future. In doing so, they keep emotions like pride or fear in check by letting themselves
cool off before approaching the next trade with a clear head and sound judgment.
5. Accept your winnings. Just as important as taking a break after a loss is to quit while you are
ahead and take your winnings. A succession of wins or one particularly big win can make you
feel invincible and you could subsequently rush into another position to try and do it all over
again. You might even open a succession of new positions in the belief that none of them will fail
because today is ‘your day’ on the markets. This could cause you to take unnecessary risks or
diversify your portfolio too quickly without doing an analysis of each of the respective markets.
Happiness can be just as dangerous as anger during your time on the markets and, as such, it
is important to recognize when it might be impairing your decision-making or could be having a
negative impact on your trading psychology.
[8:13 PM]
6. Keep a trading log. Although I have explained in lesson 3. A trading log is part of your trading
plan. A trading log will enable you to record all of your losses and wins, as well as the emotions
that you were experiencing during that particular trade. As a result, you can conclude if it was an
emotionally driven trade or an analytical trade. (FYI 1 or 2 trades a day is more than enough).
For instance, a trading log can be used to record a time when you chose to cut your losses and
the eventual price that the asset hit. By doing this, you can see if you made the right decision or
not. Equally, it can be used to record when you accepted your winnings and if your emotions
played a role in whether you chose to close that position too early or a little late.
(KEY TAKEAWAY)
For the most part, any emotion is a bad emotion. Exceptions do occur, although you mainly act
out on negative emotions if they are present. Reviewing your emotions is equally as important
as reviewing your charts.