What role do you think that trading psychology takes in effectively and profitably trading? Do you think it would be as much as 50%? If so, you’re in for a surprise, because it has been estimated that psychology accounts for 90% of trading success and your trading method only 10%.

It’s amazing when you think about it, that people spend so much time trying to find the ultimate trading method, or even the “holy grail”, and don’t spend the time and effort required to train their minds to be able to cope with trading. It is a matter of coping, as you are threatened on all sorts of primal levels when you are trading, and if you are not prepared for it you will make some mistakes.

The first and perhaps major psychological hurdle that you have to deal with is that some of your trades will lose. It’s inevitable that the unprepared mind will burden itself with this, and consider that something could have been done “better”. This actually isn’t the case, the market is larger than anybody and will do what it wants, whether or not it accords with what it should do. One of the answers to this is to make sure that you can detach yourself from the money that you trade with, and treat it more as an academic exercise and result. You can help yourself in this exercise by making sure that you have good money management, so that no one trade will wipe you out.

Nevertheless, you’ll still be threatened when several trades go wrong in a row, and that will cause you to doubt your system, second guess your next move, and all sorts of other reactions which may lead to losses. I say may, because sometimes the market will pretend to prove you right, and you will believe yourself to be a better instinctive trader than you really are. If you have been trading for long, you probably have experienced the time when you don’t stick with your plan, and it happens to work out well.  Beware that you don’t take this seriously!

So what should a prospective trader do? Practice, practice, as was once said in a different context. In this case, backtest your system enough that you have absolute confidence in it, and can ignore any temptation to deviate if a few trades don’t come through. If you don’t believe in your system, the doubt and fear that follow will ensure that you throw it away, and in the long run this will not benefit you.

Trading psychology sounds frightening, but really it is your friend. Don’t forget that about 80% of beginning traders give up in the first six months. What do you think is the chief cause of their downfall? That’s right, they fail as they  just can’t cope with the psychology of trading. This represents a great opportunity to profit from their mistakes. You know that other traders suffer from the same greed and fear that you used to, and you can exploit what that makes them do. Some people have even said that trading psychology is why Fibonacci Ratios work – other traders expect them to and trade appropriately! Above all, plan your trade and trade your plan, despite any inclination to do otherwise, and you’ll be streets ahead of most traders.