When people first start trading they have nothing in order to compare the markets to. Simply because they have never experienced markets they cannot compare or contract it with other things. Once someone begins trading and experiences losses your head begins to record these activities and begins to associate potential trading experiences with what happened in past times. Since most people start out taking a loss in the markets and don't become successful with their first trade, your head begins to associate the personal market with negative emotions. This causes a number of reactions in most people starting from headaches to severe panic episodes. Moreover these thought could occur on an unconscious level and you may not even realize that it is happening till someone points that out to you or you may make the connection yourself. Unfortunately, it can take years to create that connection and quite often it's too late. The negative could potentially cause severe impairment in your judgment as well as your trading abilities.
Trading psychology is a little more elusive than trading techniques. With trading indicators and chart patterns it is easy to see what mistakes were made and much better to correct these mistakes. The mind is much harder to get into or understand so it's a whole lot of more difficult to train the right way. There is however some specific actions you can take to improve your reaction to advertise action and strengthen you dealing psychology.
I know one trader which became so afraid of the concept of trading that he kept launching and closing accounts at different brokerage firms to avoid trading. He would find faults using every brokerage house he opened a free account with just so he might avoid trading. He didn't realize why he was behaving by doing this till he got over his fear and surely could analyze his behavior in retrospect.
I compare this behavior in order to someone who had a traumatic experience in past times and avoids behavior that consciously or subconsciously reminds them from the trauma that was suffered.
The way to get over your negativity on the market is by decreasing your position size to a couple shares or a mini contract in case you trade futures or currency deals. Little by little as you set out to trade without much risk your mind will begin to reprogram and begin to react to the markets in a better way.
I spoke to several psychologists about this topic and they explained to me that losing money can be traumatic for some people and these experiences are much like someone who is suffering through Post Traumatic Stress Disorder. Of having to deal with this type of issue is head on. Exposure therapy works with traumatized war veterans and people who experienced terrible events in their life. For some people losing money is really as traumatizing as suffering from a new physical injury and exposure therapy may help bring everything back in perspective.
I've handled dozens of traders who were experiencing anxiety about the market on an unconscious level. The best way to handle this issue is head upon. You have to reprogram the mind to see the market objectively as an alternative to thinking the market is out to get you or jeopardize you in some manner. In reality the market seemingly neutral and doesn't care what you do or how you behave. There are no hidden causes or agendas against you personally.
The second major trading therapy issue I notice frequently is dependent on simple human nature principles. Individuals are naturally wired to behave some way from the time they are born. People are used to being rewarded if they do things correctly and schools reinforce this behavior by giving grades that correspond to how often you're correct. Our society conditions people in order that when they get the right answer they know they are doing something right and if they get the wrong answer they are conditioned to believe that they're doing something wrong.
You notice that the throughout both situations the underlying concern will be correct. Unfortunately, trading has nothing related to being correct. Most professional traders are correct less than 50% of that time period. Profitable trading is based on riding winners to become bigger and liquidating losers quickly to not become bigger. Being right could be the last thing professional traders worry about.
I know many traders who take a large number of small losers in a line and come out ahead by the end because their winners are 20 times the dimensions of their losers. Being right and making money are not related in terms of trading as they are in many other things in life.
This basic human behavior we begin learning from a very young age works well for adjusting people to be in society and become productive. This same behavior is among the leading reasons why beginners minimize their winners quickly and experience out their losers. The mind believes that by holding on to a losing position we have a chance that the position could come back. If the position comes back then the traders obviously made the best decision and therefore he is a great trader. Conversely, when traders are in a winning position they quickly take profits to be able to feel like they made the best decision.
These two issues psychological issues account for 90 percent of all the so-called trading psychology issues that really exist today. The first step is realizing which you suffer from one or both these issues and then taking the right approach to resolving these issues. I have seen traders go from big losers to persistently positive winners after resolving these 2 psychological barriers along with time so c