Trading Psychology and Risk Management

A solid understanding of trading psychology allows you to make rational decisions and avoid emotional pitfalls and risk management helps you protect your capital and achieve consistent returns.

Trading psychology refers to the emotional and mental state of traders as they make decisions in the financial markets. The ability to manage trading psychology is essential for success in trading, as emotions can often cloud judgment and lead to irrational decision-making.

This is the first of a non consecutive series of trading Psychology publications, next week another topic will be studied and then this topic will be revisited.

Trading Psychology is the most important topic in trading, but it will always work if you have a process, a specific approach that you have backtested.

The examples in this content will be based on Technical Analysis as the key approach; there is also the Fundamental Analysis approach that is very important, but I prefer to start from the Technical one and validate with the fundamental; otherwise you can end buying great companies with ugly charts like PYPL or BABA.

A note about the market:

The market closed today with a solid breakout across the board: SPX +1.02%, NDX +1.09%, DJI +1.09%, and IWM +0.98%. This looks like a non stop train that is stressing people who are looking forward for a pullback to load more longs, that pullback may be short lived and at a higher level than anticipated.

Take into consideration the VIX, which closed today above the 20DMA, remember that it is a first yellow flag to consider as shared during the weekend.

That said, anxiety can be suffered by some people now, or some other could feel it when the market retraces if they bought recently.

About trading Psychology:

Here are some strategies to help manage the different feelings around trading and charts are included with fresh examples analyzing the latest moves for Bitcoin, TSLA and NDX.