These books on trader psychology will undoubtedly teach you a vital aspect of trading that many of us do not pay attention to.
Trading psychology is one of the most important aspects of successful trading. Reading these books to gain an edge over other traders should be at the top of your to-do list.
The focus for most traders is undoubtedly learning all sorts of technical along with fundamental analysis.
Everyone is in such a hurry to start placing trades with the aim to make profits, subconsciously ignoring the psychological aspect of trading.
With respect to that, this article will reflect on trading psychology along with the best trader psychology books out there.
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.
Thereafter, a portion of this account is actively used to trade the foreign exchange market; which is referred to as risk. 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 and this results 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 completely normal as every trader has felt this way before.
The greatest emotion in trading, however, is undisputedly greed. Greed pushed traders to use high lot sizes which results 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 takes a major toll on 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 you 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.
To build a solid foundation, start your trading career on a demo account. 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 in order to achieve optimum accuracy while utilizing risk management.
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.
Moving on, if an analysis is done correctly, there should be realistic targets for profit taking before opening a trade. Respect these set levels and if goes way past that, then so be it.
On occasions like that, a trailing stop comes in handy in managing open trades. It simply involves adjusting the stop loss as the price approaches the set take profit.
To help you learn how to manage trading emotions, a few trading psychology books are listed below.
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. In this book, he didn’t speak on technical analysis or trading strategies.
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 behaviours yet some don’t even execute a trade and named this a “psychological gap”.
Prior to this book, Mark Douglas wrote another masterpiece named ‘Disciplined Trader’ which also embodies his focus on trading psychology.
One thing is 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 he has 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 he 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 still go ahead to violate them.
Furthermore, he went on to describe that attempts to change fail due to a lack of an emotional force.
#3. Market Wizards
Market Wizards is a unique one amongst 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 a lot of traders fail to recognize.
Most traders dwell in the forex market and get engulfed in making insane returns in little amounts of time.
Another important aspect this book clarifies is learning to admit when a mistake has been made. The market simply doesn’t owe it to us to do anything.
The goal as a trader is to ride the trends the market presents to us not predict the direction.
This is another masterpiece from Mark Douglas which was released before Trading in the zone. It focuses on making readers 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.
This is one of the best trader psychology books which was written by Brett N. Steenbarger. He encourages traders to journal trading activities meticulously.
This way, overall trading performance, and bad practices are realized and corrected.
Nevertheless, what stood out for me was how he described trading emotions. The truth is, 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 trade desperately. This is called revenge trading and clouded by emotions traders tend to over-leverage and it never ends well.
While trading losses are taken from time to time. This should not be an issue with appropriate risk management and a good trading strategy.
A way to compact 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 to lose money plays a big part in this too. To eliminate hesitation, back-test your trading principles, practise risk management, and only invest an amount you can clearly lose.
Being new to the foreign exchange market is highly overwhelming. Even after the chart can be interpreted and analysis has been learned, this doesn’t change much.
You can learn every strategy in the world but as long your trading psychology is weak, it doesn’t matter.
As a newbie having a mentor or a genuine community can make a difference. You can learn hands-on from traders who have navigated the space for a long which will help to ease you into the market.
Lastly, you’d only be really scared if you’re investing money you should not, trade/ deploy risk responsibly.
Summary: Trader Psychology Books You Should Read
All of these trader psychology books mentioned in this piece have moulded 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.
Practising risk management appropriately while keeping the psychological aspect in check is the path to thread. One of my favourite quotes from a mentor of mine is; “why should you fear risk if it is calculated?’