Psychology and trading: Discovering the mind behind the markets

easyMarkets' James Trescothick explores the relationship between psychology and trading.

Benjamin Franklin once said “investment into knowledge pays the best interest.” When it comes to taking the very first steps into the journey of becoming a commodities or currency trader, this sentence has never held more importance.

As with every human decision, psychology is the driving force, and often determines action. If action is controlled by psychology, what is psychology controlled by?

The answer is simple: knowledge. In an ever-growing online trading industry, where access to different asset classes is getting easier by the day, it’s not enough to understand what an instrument is and the factors that drive it. The visual noise of technical and market movements can be blinding and overpowering, so if a novice trader wants to make it to the top, taking the psychology of trading into account is important.

The main difference between an unsuccessful and a successful trader is the ability to control ones’ psychology and emotions at the most vital decision-making moments, when in a split second a choice must be made about a position in the market.

When traders find themselves having to make quick decisions, they need a certain presence of mind, discipline and emotional control, all this can be achieved when there is a firm plan, a strategy one could say, which helps them know when to make which decisions about booking profits and taking losses.

As positions move in favor of the trader all seems great, but once that position starts crashing, all novice traders will start frantically asking themselves questions such as:

“Should I buy?”

“Should I sell?”

“Should I take profits and be done with it?”

“Should I take the loss and hope my position improves?”

A professional trader doesn’t have all the answers but has a plan, hence there is no space to let excitement, fear, greed or self-doubt make the decisions. A well-thought-through successful trading plan could help every trader develop the discipline to make the markets work in their favor.

A disciplined trader knows which factors influence his decisions, and can foresee how he will act even before opening his forex mt4 terminal and seeing current market conditions.

easyMarkets recognizes this major problem that most newbies suffer from, which is why they are developing a new educational video series called “Discover Trading,” which includes, among other subjects, the new and not very often explored subject of trading psychology.

Traders will learn all about the psychology of trading and money management techniques. Successful traders have a full arsenal of knowledge at their disposal, with easyMarkets leveling the playing field and make that knowledge accessible to all.

At the end of the day, traders are not born, they are made.  

James Trescothick is the reputation and education manager at easyMarkets.

Risk warning: Forward Rate Agreements, Options, and CFDs (OTC Trading) are leveraged products that carry a substantial risk of loss up to your invested capital and may not be suitable for everyone. Please ensure that you understand fully the risks involved and do not invest money you cannot afford to lose. Our group of companies through its subsidiaries is licensed by the Cyprus Securities & Exchange Commission (Easy Forex Trading Ltd- CySEC, License Number 079/07), which has been passported in the European Union through the MiFID Directive and in Australia by ASIC (Easy Markets Pty Ltd -AFS license No. 246566).

Praseeda Nair

Praseeda Nair

Praseeda was Editor for from 2016 to 2018.

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