Whether you are a forex trader, stock trader, crypto trader, or options trader, these trade psychology books will help shape your trading mindset and keep your emotions in check while trading.
Trading psychology is one aspect that many of us do not pay attention to.
However, Trading psychology is one of the most critical aspects of successful trading.
I have read all of these books, and I can assure you that they will help you in mastering trading psychology quickly.
The focus for most traders is undoubtedly learning all sorts of technical and fundamental analyses.
Everyone is in a hurry to start placing trades to make profits, subconsciously ignoring the psychological aspect of trading.
With respect to that, this article will reflect on trading psychology and the best trader psychology books.
Trading Psychology
Let’s face it; we’re all attached to money to different degrees, which is totally natural. In trading, funds are deposited through a broker into a trading account.
A portion of this account is actively used to trade the foreign exchange market. Currency pairs of your choice are analyzed, and the direction the market might be heading is backed with money.
Of course, there’s a possibility the analysis is wrong, resulting in a loss. Only this is enough to put a strain on a trader’s confidence due to constant doubt.
Anxiety is also prominent after executing a trade; it’s normal, as every trader has felt this way.
The most dangerous emotion in trading, however, is undisputedly greed. Greed pushed traders to use high lot sizes, which resulted in the account being blown (margin call). It is also why profit isn’t taken after considerable returns.
Missing out on a good trade also significantly affects forex traders. The forex market is a cycle of endless opportunities, don’t stress over it.
Put your head down to find the next “mooner” without subjecting yourself to the urge to trade recklessly.
How to Manage Trading Emotions
Subsiding the various emotions experienced while trading isn’t an easy feat. But pulling it off elevates you as a trader and individual, most definitely.
Start your trading career on a demo account to build a solid foundation. Alternatively, some platforms offer paper trading resources.
Implement your trading principles on this demo account till they feel as natural as breathing.
There is no rush to dive straight into trading with actual money (live account). This phase is necessary as it erases doubt in your analysis.
Also, develop and tweak your trading methods as much as possible to achieve optimum accuracy while utilizing good money management strategies.
Learn to deploy a stop loss at all times. This way, charts don’t have to be monitored all day long.
Remember, the goal is financial freedom, and the last you want to do is become a slave to the charts since it breeds anxiety.
If an analysis is done correctly, there should be realistic targets for profit-taking before opening a trade. Respect these set levels, and if it goes way past that, then so be it.
On occasions like that, a trailing stop is handy in managing open trades. It simply involves adjusting the stop loss as the price approaches the set take profit.
A few trading psychology books are listed below to help you learn how to manage trading emotions
Top 5 Trader Psychology Books
#1. Trading in The Zone
There’s a chance if you’re into any financial market, you’ve come across this book. It was published by a man named Mark Douglas. He didn’t speak on technical analysis or trading strategies in this book.
The focus is on trading psychology, and he did an astonishing job relaying his message in this book. He highlighted that every trader studied multiple trading patterns and behaviors, yet some don’t even execute a trade, he named this a “psychological gap.”
Before this book, Mark Douglas wrote another masterpiece named ‘Disciplined Trader’, which also embodies his focus on trading psychology.
One thing I like about this book is how he started off openly speaking about his challenges at the start of his trading career.
#2. Trading Coach
The author was overweight, and even though he wanted to get back in shape, he kept procrastinating about it. Eventually, he was diagnosed with diabetes and had to get on a strict diet to balance his blood sugar level.
He only got the will to do this when he realized his life was on the line and did not want to let his daughter and wife down.
He used this situation as a brilliant analogy relating to trading. We all set a bunch of rules, whether it’s not to trade at certain times of the day, fixed lot sizes, etc., but we still go ahead to violate them.
Furthermore, he described that attempts to change fail due to a lack of an emotional force.
#3. Market Wizards
Market Wizards is a unique one among trader psychology books. It is a compilation of interviews with some of the most successful traders.
For one, this book places capital preservation over profit-making, which many traders fail to recognize.
Most traders dwell in the forex market and get engulfed in trying to make insane returns in a short amount of time.
Another essential aspect this book clarifies is learning to admit when a mistake has been made. The market simply doesn’t owe us anything.
The goal of a trader is to ride the market’s trends, not predict the direction.
#4. The Disciplined Trader
This is another Mark Douglas masterpiece released before “Trading in the Zone”. It focuses on making traders realize how much emotions play a big part in trading decisions.
Also, stopping emotions from leading to losses was spoken on. Mark Douglas goes on to point out that individuals should banish certain biases. The market should always be analyzed objectively only.
#5. The Psychology of Trading
This is one of the best trader psychology books, which Brett N. Steenbarger wrote. He encourages traders to journal trading activities meticulously.
This way, overall trading performance and harmful practices are noted and corrected.
Nevertheless, what stood out for me was how he described trading emotions. As humans, we can’t be numb to certain situations.
Instead, channel these emotions to guide you instead of trading them. For instance, when a trade is going well than expected, you feel euphoric (on top of the world).
When you feel this way, it’s probably best to take profits before greed kicks in.
What is a Revenge Trade?
On the back of consecutive losses, some traders let their emotions get the better of them and began to trade desperately. This is called revenge trading; clouded by emotions, traders tend to over-leverage, which never ends well.
While trading, losses are taken from time to time. This would not be an issue with appropriate risk management and a good trading strategy.
A way to combat this is to take a break from the chart entirely after three consecutive losses. Step back and evaluate what went wrong and try to amend them.
When trades are executed, and it goes south, this is where the doubts start. It leads to traders ignoring textbook set-ups which become winners and leaves regret.
Also, the fear of losing money plays a big part in this. To eliminate hesitation, back-test your trading principles, practice risk management, and only invest an amount you can clearly afford to lose.
Being new to the foreign exchange market is highly overwhelming.
You can learn every strategy in the world, but as long your trading will is weak, it doesn’t matter.
Having a mentor or a genuine community can make a difference as a newbie. I suggest you join forums like Forexfactory and read Forex trading blogs like mine.
You can learn hands-on from traders who have navigated the space for a long time, which will help to ease you into the market.
Related: The Best Books For Swing Traders
Summary: Trader Psychology Books You Should Read
All of these trader psychology books mentioned in this piece have molded various traders into successful entities in this space.
Mind you, before exploring trading psychology, technical/ fundamental analysis should have been learned. Without appropriate risk management, nothing changes, really.
Practicing risk management appropriately while keeping the psychological aspect in check is the path to thread. One of my favorite quotes from a mentor of mine is, “Why should you fear risk if it is calculated?’