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The Psychology of Trading
Reading this now means that you have heard of stories of successful and
flamboyant Traders, have you not? If thats true, then you also know that
there is partial or full truth that
traders can make a living from the
Financial Market, right?
Nonetheless, when questioned,
many successful traders cannot
articulate why and how they
become successful. Typically, they
only talk about the technical know-
how or about the systems theyve
developed. Dont get me wrong, I believe they have earned it and should be
given credit for that.
On the other hand, when asked about Trading Psychology, they all agree that
Psychology is crucial for success. However, no one really explains it in
enough detail. They would talk about what their personal experience and
thats about it.
Struggling traders almost always blame the
market. They claim that they are losing
because the market is not in their favour.
Meanwhile, traders who constantly break
even love to jump from one system to
another in the hope of finding the Holy
Grail (which doesnt really exist).
What these traders dont realise is that the
market is fair and it treats everyone the
same way. It is the traders decision when they take positions in the market
and, hence, it is the responsibility of the Trader if they lose.
Instead, if you understand the Psychology of Trading, you can relate to the
fact that Trading is fairly simple.

Trading Success is
80% Psychology
and 20% Technical

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The 5 Ingredients

Before I talk about the ingredients, let me quickly share with you something
useful knowledge.
The truth is, a persons Psychology is heavily influenced by their upbringing,
living/trading environment and background. Those are the things that made
us who we are and, believe it or not, it has TREMENDOUS IMPACT on
how we trade the market.
Hence, you will realise, sooner or later, that mastering your Trading
Psychology is not difficult (though not easy) and theres nothing more than
making continuous effort to become better.
The real problem with improving our Trading Psychology is that its
challenging to pin point a starting point. The worst thing is that many people
only seek help from technical coaches and they either fail to realise that
technical coaches are not trained in this area or they dont realise that
psychology or mindset coaching (read more) is available too.
Nevertheless, its not too late to seek help
now and, as a starting point, Ive managed
to narrow down what seems like an infinite
list to what I believe are important
ingredients when working on your own
Trading Psychology. I hope that this guide
can provide a stepping stone to help you
start out successful.
Psychology is not
difficult (though
not easy)

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#1. Positive Attitude
I begin the first and most important subject of trading or, more specifically,
learning about trading psychology your attitude.

A traders attitude (mindset, mentality or what ever you may call it) is the
back bone of your trading psychology. And this is because a traders attitude
can determine if he can be successful or not.
1.1 Why is attitude important?
Well, think about it, your attitude determines the very first energy that you
hold in your sub-conscious mind.

This is very similar to how first impression works. That energy is built
within the first few minutes of meeting a person/ challenge / problem and
that energy remains for awhile until it gets replaced

Remember the last time you met someone and you felt uncomfortable with
him/her? Can you relate to that? Well, thats a negative energy and it was
created within a first few minutes. Because it was
a negative energy, the chances are high that you
had no motivation to approach that person, right?
And unless you were forced to, you would part
your own way instead.
On the other hand, if you had a good first
impression, you would have a positive energy
which also creates a positive motivation and you
unconsciously work towards a positive outcome.
That same energy is determined by your attitude
towards trading too and if your first energy is not
positive, then, this becomes a challenging ride for
you. But if you have a positive energy, things
will smoothen dramatically.

Related article:
Trading Mindset: Trading Success Is Possible - http://goo.gl/GvBzLq
5 Ways to Stay Positive After Some Losing Trades? - http://goo.gl/o9CtKh

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1.2 Half-Full or Half-Empty?
So meeting a person is a very subjective matter. So lets use another simple
analogy and that is to ask if a cup is Half-Full or Half-Empty?
Essentially both of these answers are the same but its the persons
perspective that really matters. The situation can be a problem, a process or
just an average opinion.
When I coach a person, one of my interests is to see if he/she approaches it
with a positive attitude or has he/she already given up right at the start?
The interesting part to this is that a persons true colour is usually only
obvious when he/she is under pressure. For example, it is difficult to tell if a
traders attitude is positive or negative after he lost 3 trades. On the other
hand, we can easily access a persons attitude if he has had 3 losing months.
1.3 Keep Going
It is estimated that Thomas Edison failed at making the light bulb 10,000
times before he succeeded.
As clich as this may sound, I want to emphasise that having a Cup Half
Full attitude is slightly different from having a Keep Going attitude.
A Half Full attitude gives you the fuel and drive to move forward initially.
However, during the days when Trading results are not going any where, its
like hitting a major road block. Throughout days like these, you really need
to stand firm to your conviction and to Keep Going. You need to hang on
and be persistent in your beliefs and stand up from your fall to try again.
1.4 Commitment
Every successful trader, in the
past and present, would have in
one way or another, committed
themselves to achieving success.
Having a full commitment to
success is crucial to a traders
psychology. Once traders are
committed, the commitment
comes not just in the form of
Time and Money, above and
beyond that, they also come in
the form of Energy, Emotions and Creativity. The commitment that they

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hold can give traders the strength to make things work and to find resources
that traders would not normally realise exist.
Commitment is indeed a powerful attitude to have. While it is not difficult to
obtain, it needs to come from within, from your desire and your dreams.

Related article:
The 4 Ds You Need to Achieve Trading Success? - http://goo.gl/4t5xcl


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#2. Emotional Awareness

Source: Link
According to Wikipedia, there are 6 main types of Emotions. Within those,
there are sub-types as well. To be honest, the list is endless.
Like it or not, Human Emotions are part and parcel of life. Unfortunately,
emotions often distort a traders mind and prevent them from making
rational decisions. Emotions can be a Traders worst Nightmare.
However, the idea here is not to ignore or avoid emotions. Instead, traders
should embrace it, be AWARE of it and manage it.
Institutional traders spend a significant of
money getting it right. They either invest
heavily in education or they invest in
sophisticated Risk Control strategies as part
of their Risk Management. However, these
are the precautions that are often overlooked
by self-employed or retail traders. The end
result would vary and some can be devastating.
In my view, traders should nip the problem in the butt before emotions
become devastating. Hence, I cannot emphasise enough that Emotional
Awareness is crucial for the development of trading psychology.

Related article:
How Our Experiences and Expectations Can Wire Our Emotions The
Wrong Way? - http://goo.gl/jxTPUe
Human Emotions
are part and
parcel of life.

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Learning to Leverage on Your Trading Emotions - http://goo.gl/J299Oh
4 Ways to Overcome Your Trading Fears - http://goo.gl/H2TE9f

2.1 Prevention
The clear step after awareness is prevention. Preventing a crisis is a much
effective and efficient way of managing
Here comes the next big task.
For traders to prevent emotional issues
from happening, they need to understand
themselves as individuals and emotions
that causes problems. Unfortunately,
there is no fix and hard rule to doing this.
The only recipe that has always worked is
Practise getting emotional, practise feeling the emotional turmoil, practise
being aware of your heart beat, practice feeling the pain when a trade doesnt
go your way. Seriously, the list goes on.
If you really want this to work, be innovative and creative and find ways to
learn about YOU. It can be a slow and painful learning process but the
reward of knowing your emotions is just too great to be ignored.

Preventing a crisis
is a much effective
and efficient way
of managing

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#3. Belief
A persons Belief is the core reason why one would be comfortable in taking
action to achieve specific goals. For example, if you belief that a car works,
you accept it and youll drive it.
The bigger the Belief, the bigger the action will be.
Another important thing to note is that your
initial Belief comes from gaining knowledge
and, sometimes, experience. Hence, believing
in the car manufacturer is only one part of the
equation. The other part is where the driver
needs to learn to operate the car and drive it
in a safe manner. And theres no other way
but Education.
Once youve established the initial Belief, you grow it through the Belief
Cycle. This is discussed further in the Routine section.
If you believe in Beliefs, then you should also believe in Limiting Beliefs
(read more) because this is one of the reasons many traders fail to execute
their plans. They fail to take action no matter how big their beliefs are
because there is an opposing Limiting Belief that holds them back.
Note: While this subject is not covered in detail here, make sure to start
being AWARE of it.
3.1 Market
All financial market behaves differently and most of them have their own
Personality. Sure, some of them are co-related but, nonetheless, there are
unique characteristics that make it what they are. For example, the S&P is
fairly related to FTSE 100 but both of these markets are driven by different
speculators and governed by different regulations.
Before you trade the market, you would have established a certain pattern in
the market and you would probably have taken a position based on that
pattern. That pattern, which you have established, is essentially your Market
3.2 Trading System
Your Trading System is a methodological approach of taking and closing a
position in the market. This system has specific risk profiles, trade criteria,
exit criteria and requires specific market conditions.
The bigger the
Belief, the bigger
the action will be.

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The outcome of that?
Base on a specific set of enter criteria, the system produces specific trading
results too which includes trading frequency, Reward:Risk Ratio,
Expectancy, expected drawdown and so on.
In my view, your trading system should also incorporate your risk
management system and money management requirements. This is just a
practical approach because you should not enter the market without first
establishing your risk and potential financial rewards.

Related article:
Why Mechanical Systems are Crucial for Novice Traders? -
3.3 Self (Belief)
This is one of the most crucial parts of
trading psychology. This is because you,
the trader, are positioned between the
Market and the Trading System. It is
pointless to belief in the market and/or the
trading system when the trader fails to take
Above and beyond that, Self Belief is about you, your values and your ability
to eliminate the doubts within you and make a difference in trading (or in life
in general).
Remember that Nobody can make you feel inferior without your consent.
The opposite is also true; having Positive Self Belief is a choice. It might not
be the easiest thing to achieve but its not impossible to change if youre
currently in the negative zone.

Related article:
Knowing Yourself Is More Important Than Knowing the Market -
Limiting Beliefs The Silent Killers That You Should Eliminate -
Nobody can make
you feel inferior
without your

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#4. Money Relationship
Money is a unique asset but, more
importantly, this asset can make or break
you. As money is such a personal matter,
everyone views it differently some
people love money, some need money
and some see it as a means to an end.
Essentially, what you really need to know
is this What is YOUR Relationship
with Money?
The biggest problem with this is that many traders THINK they understand
money. Unfortunately, this is not a typical question and many traders have
not thought about it thoroughly.
The following is an example of how traders would get confused.
Case 1 Trader A is a successful trader. He took a personal loan to
top up his trading account a few years ago and he has now repaid all
his debt. He believes that to make sufficient returns, you need more
Case 2 Trader B is also a successful trader. He believes that the
quickest way of making money from taking is by trading leveraged
financial products only. For example: trading stocks and equities are
less attractive compared to trading stock options or futures.
Now, Im not here to debate which one is a better money manager, nor do I
want to see whose money belief is better. In fact, in my view, both these
traders are doing exactly the same thing they are both trading on leveraged
However, if Trader A did what Trader B
had done (and vice versa), the results of
both the cases might have been completely
different. Trader A might not be able
comfortable with the P&L fluctuations of a
leverage financial product. And Trader B
might have sleepless nights due to the
liability in his personal account.
I hope you get the picture, traders needs to dig deep to understand how
money affect them and how their money beliefs can be very different from
the conventional view.
What is YOUR
Relationship with

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Once youve established that, you can then decide if Money is a Friend or a
Foe of your Trading Psychology and move on by taking appropriate actions.
4.1 Money Objective
Once you understand your relationship with money, it is also useful to
identify the reasons for having money. Questions like these are critical:
What do you want from Money?
Is Money the Only solution? Or is it the best alternative?
And thats the point of this Ingredient. If you want a trading success, make
sure to establish clearly the psychology and relationship you have (or would
like to have) with money.
Without establishing clear and valid purposes for achieving financial goals, a
trader may find it difficult to take relevant actions to achieve these goals.

Related article:
Why Trading Profits (Money) Should be Secondary? -


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#5. Routine
You may ask what Routine has to do with Trading Psychology. Well, in
my view, your routine is where you build your Belief Cycle.

A simple Belief Cycle is based on the above chain. Trading the financial
market is fairly routine activity. In fact, the more you trade, the more
repetitive it becomes and, without even realising, youre continuously
increasing your Belief.
A good routine is imperative because good routines would ensure that
Actions are managed and Results are monitored. This would then lead to a
reasonable Review process. With that, any Review outcomes become
constructive feedback that reinforces the
Belief, before new and improved
actions are taken.
On the other end of the spectrum, if
theres not routine, no Belief Cycles
would ever be built.

Related article:
How to Build Winning Beliefs? - http://goo.gl/tmzMtK

A good routine is

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5.1 Trading Process
As Van Tharp says it in his book Super Trader, the trading processes are
the things that you need to do on a day-to-day basis in order to be a good
trader. In my view, the following items are vital and are the minimum
requirement to establishing a good trading process.
Trading Plan
This is a written document to show what, how, when and why you intent
to achieve trading success.
Trade Review
This can be in the form of a trading journal. Which is a record to show
what you actually did? This can eventually be marked against your
trading plan to identify any variations.

Related article:
5 Reasons Why Traders Struggle to Create a Winning (Trading) Plan
- http://goo.gl/BRcj9b
Your Secret Weapon to Trading Success A Trading Journal -
5.2 Discipline
Just to be clear, discipline is NOT a sub-set of Routine. However, Ive
deliberately put Discipline under this heading because, essentially, you need
to have some sort of discipline to be able to execute a fixed routine.
Its easy to follow the plan a few times but if you had to repeat the same
routine in the long term, youll definitely fail without discipline.
This is especially true in the trading world because trading can be lonely and
there is less chance of relying on others to get you going.
Related article:
10 Tips to Start Building Good Trading Habits - http://goo.gl/DmjFM2
5.3 Continuous Improvement
In the war time, soldiers are often told not
to let their guards down no matter how
victorious they were. And this is because
Traders should
constantly find
ways to improve
themselves and
their trading

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youll never know when your enemies would strike again.
This metaphor is applicable to Traders as well. Traders should constantly
find ways to improve themselves and their trading because once they become
comfortable, they become sluggish and thats when mistakes start to crop up.
If you dont make an effort to prevent one mistake, more would come along
and stay.
Also, having a routine which integrates continuous improvement will most
certainly enhance your trading beliefs and make you a greater trader in the
long term.


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#6. BONUS Its a Business
Before we end, heres a BONUS Ingredient for you and its something for
you to think. While trading is not an ingredient, having the mindset of a
business person is the ingredient itself.
If you are new to trading or you are having difficulties in achieving
consistency in trading success, then you must understand that trading is not a
game and Trade Your Edge was not designed for those who think of it as one.


Learning to trade will require time, hard work, education, commitment and
support. More importantly, it requires the right attitude. With that, please
remember the following:
Trading is a business, so treat it like
one. Even doctors spend several years
in medical school before they start
their houseman/registra training. And
thats just the starting point long
before they can see their six figure
salary. Any one who thinks you can
become a successful trader within a
few months will most definitely head
down the road for a rude awakening.
This is not a game and its not a get rich quick scheme. You will find
the occasional stories of traders who made X amount of money in a day
or week. This is certainly possible once you become a full time market
trader but what those traders dont tell you is that theyve had their fair
share of sweat and toil before getting there.
There is no Holy Grail and there is no short cut. However, like every
other business, if you have a sound business plan and you follow it
diligently, you are assured success. Be patient in your development, be
humble in your achievements and you will be achieve long term success.


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A good trader will not knock anything that has a view even contrary
to their own. Good traders continue to adapt their internal mental
environment they continue to learn and take advantage of whatever or
whoever has something to give of value. They open their minds to the
opportunities that the external environment offers.
Work hard, dont ever give up and one day your find complete peace
and harmony with trading.
Protect your money. Understand that money is hard earned and many
people around the world do not even have enough to live through the day
with a decent meal. Dont take money for granted and always start with a
demo account. Be wary if anyone insists
that you must have a funded account
before learning to trade.
Be sensible and be responsible. It is
fine to be ambitious and to have big
goals. In fact, I applaud those who do. I
only want to remind you to remain
sensible and be responsible in your approach. Serious traders invest time
in creating a well thought-out business plan and they follow it through
with hard work and dedication. You have no one to blame apart from
yourself if you lose all your money. However, if you follow the courses
and stick to the plan, you will realise that you can afford to lose once in a
while and still have plenty.

Be Sensible
Be Responsible

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Whats Next?

I strongly believe that Excellent Trading Psychology is built upon the
confluence of all the Ingredients mentioned above. Yes, Ill say it again
traders need ALL the ingredients mentioned.
Above and beyond that, the trader needs to be good in all of them
individually. One ingredient cannot do without the other because they are all
Unfortunately, this is much easier said than
done. I KNOW this because I was a victim
myself because I was as lost as a goat when
I was learning to master my trading
Of course, I cannot speak on behalf of every
trader in the market. In fact, human beings
are complicated creations and it is very
difficult to generalise the source of a traders problems. Note that I said it was
difficult to generalise and thats only because there is no once size fits all
solution to most problems.
How Can I Use these Ingredients?
The 5 ingredients here are actually pretty straight forward and many of you
reading this now would agree that they are simple ingredients. While they
are simple, many traders are still struggling.
Personally, I feel that there isnt enough of a balance between all the
ingredients which is causing traders to struggle. A trader needs to be good in
all of the ingredients (as individually). One ingredient cannot do without the
other because they are all interlinked.
One ingredient
cannot do without
the other because
they are all

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Unfortunately, because each trader has a different story, they only focus on
areas where they THINK needs most help and often ignore anything else.
Hence, they often overlook the need to use these ingredients in parallel.
Just like baking a cake. You cant bake a good butter cake without good
butter but you also cant bake it without the lack of sugar, flour or milk (ok, I
dont know how to bake a cake, but I think you get the point).
If you cannot focus on everything at the same time, my advice is to find your
weakest link and work on that as your starting point. And then, you can
gradually move from one ingredient to another until they all work in parallel.
Relevant articles:
How Successful Traders Fall? - http://goo.gl/p0RkTk


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Thank You
I hope youve enjoyed the book as much as Ive enjoyed writing it. I cant
thank you enough for taking time to reading this and for your support in my
Please leave a comment at http://www.tradeyouredge.com/subscribe/, or if
you rather contact me personally, please contact me on my Contact page.
Lastly, if you havent already, please follow me on TYEs Facebook page,
on Twitter or LinkedIn.
Thanks again and I wish you nothing less than success!

Yours Truly,
Alwin Ng
Trader and Transformation Coach

Phone: +6012 2873572
Email: info@tradeyouredge.com

Excellence Through Success Coaching

Certified Master Coach and Practitioner of Neuro-Linguistic Programming
Certified Master Practitioner of Hypnotherapy (ABH)
Certified Master Practitioner of Timeline Therapy Techniques (TM)
Certified Practitioner of Language and Behaviour (LAB) Profile for Coaching
Certified member of the International Association of Counsellors & Therapist
Investment in Knowledge Pays the Best Interest


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About Author

Hello, my name is Alwin Ng and I am the owner of
TradeYourEdge.com, a website to help Traders
improve their Trading Psychology.
Trading is a journey and Ive got a long way to
becoming a Market Wizard. Nonetheless, I love
what I do and I truly believe that anyone can trade
profitably provided they have the right Education,
Support and Commitment.
If you like what I write, please share my website
with your friend and family (oh, and while youre there, please Like my
page as well, Cheers!) and feel free to check out my work on my website.

NOTE: If you would like to share this guide, please direct people to the link
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Yours Truly,
Alwin Ng
Trader and Transformation Coach