Trading Psychology, Discipline, and the Importance of Overall Balance

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The Importance of Psychology

I am interested in health, fitness and healthy eating. I live in the Netherlands.

What Is Psychology?

Psychology is the study of people’s behavior, performance, and mental operations. It also refers to the application of the knowledge, which can be used to understand events, treat mental health issues, and improve education, employment, and relationships. The subject lies at the intersection of applied, educational, and theoretical science.

There are sub-areas of psychology, including:

  • Sports
  • Education
  • Business
  • Media
  • Physical conditions
  • Human development

The subject involves other areas of study, including humanities, natural sciences, and the social sciences.

What does Psychology mean? Where does it come from? Hank gives you a 10 minute intro to one of the more tricky sciences and talks about some of the big names in the development of the field. Welcome to Crash Course Psychology.

Why Psychology Is Important

It’s all in the mind.

In its primary form, psychology studies people—who and what they are. It looks into why they act and think the way they do and how someone can improve himself or herself. Therefore, everything a person does is connected to the subject.

Psychology allows people to understand more about how the body and mind work together. This knowledge can help with decision-making and avoiding stressful situations. It can help with time management, setting and achieving goals, and living effectively.

The science not only allows people to be more successful, but it can also impact their health. It helps many tackle their mental illnesses so that they can continue living their lives. Psychological studies have also aided in drug development and the ability to diagnose various diseases (such as Alzheimer’s and Parkinson’s).

I can personally testify to the importance of the subject. Psychology has helped me as a writer because I have become more determined to do the things I will enjoy and write on the topics that I like. I can understand who I am and look at events on a more positive aspect. Whenever I have a problem, I can handle it better. Down to the choices over the projects I will work on and the way I will handle my time, psychology helps me make better decisions within my life.

Through pride we are ever deceiving ourselves. But deep down below the surface of the average conscience a still, small voice says to us, something is out of tune.

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Five Ways Psychology Is Applicable to Everyday Life

Everyone uses psychology on a daily basis, whether they are talking with friends, arguing with a partner, or disciplining their children. Most people just don’t realize the science behind their decisions. Understand how your mind works helps in everyday life by allowing you to build strong relationships and make the best decisions. Here are five ways how:

  • The building of relationships: Psychology makes it easier to live with others by understanding them more and working with their behavior. Below, University of Texas professor James Pennebaker explains one way psychology can be used to predict romantic compatibility.
  • Improving communication: A greater understanding of how humans think and behave will help people communicate better. They will be more effective in understanding what a person really means by gestures and actions.
  • Building self-confidence: By understanding more about yourself and your personality, you can gain more self-confidence. You will learn more about your weaknesses and can build on them.
  • Enriching careers: You will be able to understand your coworkers more and stand a better chance of building friendships. It helps to deal with their actions to enrich your career.

The pendulum of the mind oscillates between sense and nonsense, not between right and wrong.

Why Is Psychology Important to You?

Are you a psychology student?

Top Reasons to Study Psychology

There are as many justifications to study psychology as there are students studying psychology. It’s a personal choice. But there are five reasons I want to share with you that are often mentioned as an important reason to study psychology.

1. You Learn Why People Can Act Strangely

People are fascinating creatures! We all enjoy learning about the crazy things people do. This is what makes psychology, especially social psychology, fascinating. For instance, you will learn about the bystander effect, which explains why you are more likely to be helped when one person sees or hears you in your hour of need than when a large group is watching.

2. You Learn About Kick-Ass Experiments

Many early scientific studies wouldn’t pass the ethical test nowadays. Still, it’s interesting to read about them.

One of the best known is the Stanford prisoners experiment, which studied the psychological effects of the power dynamic between prisoners and guards by having volunteers simulate a prison situation. Or that of Little Albert, a little boy who was taught to fear a little rat. Little Albert ended up being afraid of fluffy white animals for the rest of his life. The video below explains the research in six minutes. Fascinating and outrageous.

3. You Learn to Do Research

Studying at university is cool because you learn academic skills. As a result, you end up with a more critical attitude, and you do not believe everything published or broadcast. And at one time or another, you’ll get to do research about a topic of personal interest.

One of the most important tools that a psychologist has to his disposal is research. Research provides insight into human behavior, provided the psychologist makes use of scientific methods.

4. You Learn About Mental Disorders and Treatment Options

Many psychologists also deal with mental disorders and options for their treatment. Mental disorders are many and can have a debilitating effect on people’s lives. Fortunately, various psychological treatments have been developed for many mental issues. Best practices have been written down in treatment and diagnosis protocols.

The prospect of being able to help others in their struggle to live a “normal” life appeals to many students.

This new edition is used by clinicians and researchers to diagnose and classify mental disorders,. It is the product of more than 10 years of effort by hundreds of international experts in all aspects of mental health.

5. You Gain Insight Into People’s Behavior

Doing, thinking, feeling, and acting—as a student of psychology, you will get to study all aspects of human behavior. You will learn not only about the general characteristics of human behavior, but also about the differences.

What drives people? And how can you influence human behavior? These two questions are central to the practice. Examples of questions psychologists address include:

  • How do people react to stress?
  • Do athletes perform better after mental training?
  • What is love, anyway?
  • Why does one child perform better in school than the other?
  • How is it that some of us are friendly and relaxed while others are often tense or stressed out?

The reason I chose to study clinical psychology was a direct result of suffering from panic attacks. I was dealt a bad hand of psychologists. As a consequence, my condition only worsened. And when I hit rock bottom, I decided to take matters into my own hands. I set out to learn more about psychology—in particular, I wanted to learn about anxiety disorders and find the best treatment options.

For me, this turned out to be a smart choice that I never regretted. I got my life back.

Truth be told, I enjoyed all the other reasons listed above as well—except for the research, which involves a lot of statistics and math, subjects I try to avoid like the plague.

Don’t become a mere recorder of facts, but try to penetrate the mystery of their origin.

Different Psychology Careers

Psychologists go on to work many different careers. Some are mostly research-based, while others work more closely with people. A few common settings psychologists work in include universities, hospitals and clinics, schools, government, and business, although there are many more careers than the ones listed here.

  1. Universities: Ever wonder what makes food taste appealing or how girls and boys are conditioned differently in different cultures? Psychology professors spend time researching their specialities when they are not in the classroom. According to the American Psychological Association, over a quarter of psychology PhD students go on to work at a university or four-year college.
  2. Hospitals and clinics: Psychologists can also work in the health services, where they can use their knowledge to help treat people for problems from anxiety to addiction. Clinical psychologists can specialize in treating children, adults, families, couples, or different types of issues, such as depression or trauma.
  3. Primary and secondary schools: Psychologists can work in primary and secondary schools and school districts. A school psychologist uses his or her knowledge of children’s cognitive, emotional, and behavioral development to help students be successful. These professionals will likely research and monitor how students are doing at the school, implement school-wide policies, and intervene with struggling students.
  4. Government: The government employs psychologists in a wide range of careers from counseling positions to industrial organizational positions, which help the government create tests and training courses. Psychologists for the military vet men and women who want to enlist, treat issues such as post-traumatic stress syndrome, and provide counseling to the families of soldiers.
  5. Business: Consumer psychologists study consumers’ behaviors to find insights that could helpful for businesses. Industrial-organizational psychologists, on the other hand, focus their attention within the company, looking for ways to increase productivity through things such as better employee selection and training or a better designed or organized workplace. Psychologists can work for these businesses as full-time employees or as consultants.

Mean Salaries of Different Types of Psychologists

Overview of the Field

The History

There is evidence that people studied how the mind and behavior function since the days of the ancient Egyptians and ancient Greeks. However, psychology was considered a part of philosophy until it developed into a science with its roots in experimental research. Wilhelm Wundt opened the world’s first psychology lab in 1879, marking the start of psychology as a separate discipline.

Wilhelm Wundt opened the world’s first psychology lab in 1879 at the University of Leipzig. The official start of psychology as a separate discipline

Different Sub-Fields

Since psychology was recognized as a distinct field of study, it has split into many specializations. Now, the American Psychological Association lists 56 divisions focusing on everything from how the brain physically responds to habits and interactions, how to measure aspects of personality and behaviors in the first place, how to use that knowledge of psychology to improve schools, workplaces, and communities, how to make planes safer and sell more products, and how to help people with psychological problems.

Here are just a handful you can choose to focus your studies on in university:

  • Aviation: Aviation psychologists study all aspects related to pilot performance in order to increase safety.
  • Biological and Physiological: This area of study focuses on the physical processes of and correlations with psychology.
  • Clinical: This field treats mental illness and other psychological problems.
  • Cognitive: Ever wonder how you think or how memory works? This field studies how the mind works.
  • Comparative: Comparative psychology studies animal behavior.
  • Consumer: This field studies how consumers interact with products and services, often to help companies better sell those products and services.
  • Counseling: Counseling psychology provides therapy to help people overcome health-related, emotional, or social concerns.
  • Developmental: Developmental psychology studies the way people change or develop physically, emotionally, intellectually, and socially throughout their lives.
  • Educational: Also known as school psychology, this field work with the school system to improve student’s success and wellbeing through an understanding of their behaviors and psychological needs.
  • Experimental: This field refers to the scientific research psychologists do to better understand the human mind and behaviors.
  • Family: This field examines and seeks to improve family and marital relationships.
  • Forensic: Forensic psychology is when psychologists use their expertise for legal or criminal cases.
  • Geropsychology: Geropsychology is the psychology of aging, something that is sure to gain importance with the graying of America.
  • Industrial Organizational: This field focuses on the question: How can you improve productivity in the workplace by cultivating the wellbeing of employees?
  • Psychometrics and Quantitative: Psychometrics psychology deal with tests and experiments that measure personality and intelligence.
  • Social: This field focuses on how your beliefs, emotions, and behaviors are affected by others. What are the causes of prejudices and other types of social conditioning?
  • Sports: This is the study of how psychology can be used to improve performance and motivation in athletes.

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The Importance of Psychology in Trading

The Importance of Psychology in Trading

This lesson will cover the following

  • What are the main psychological factors in trading
  • How to control Greed, Euphoria, Fear, Revenge and Pride
  • The significance of an effective mindset

Some general thoughts

When it comes to trading another aspect of utmost importance is purely psychological in its nature. Psychology refers to the way every trader perceives what is happening in the financial markets and how this perception can be influenced by emotions and ones susceptibility to different biases.

There exists a tendency the majority of participants in the market to experience a similar “set of thoughts and emotions”, while engaged in trading, but however, there is a certain difference between how those who are losing money think and how those who are making profits think.

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Many traders strongly believe that a reliable and tested trading system is the only thing they need in order to perform successfully in the market. To outperform the market, in some cases, appears to be a not so hard task, but traders tend to concentrate a huge amount of their energy, effort and time in achieving it with the help of a particular strategy or a combination of strategies. Therefore, they tend to pay way less attention to how to overcome other barriers, psychological ones, such as emotional extremes. Almost always these extremes are the factors, which obstruct traders in making analysis and decisions of their own.

We should note something else. There is a reason why many individuals, who force themselves in the world of Forex trading, eventually experience severe losses. The reason for this lies in their expectations, which, in most cases, are quite unrealistic. Many people tend to believe that only a month or two of trading will enable them to leave their full-time jobs. Others tend to believe that a deposit of 1 000 US dollars may grow to the amount of 100 000 US dollars or more just in a matter of a few months.

Such far-from-reality expectations usually construct a completely incorrect mindset and fuel a pressing need to make profits, by all means necessary, in the Forex market. As the need grows larger, a trader unavoidably becomes controlled entirely by his/her emotions, a 100% percent sure way to go broke. It is this combination of wrongly defined trading objectives and unrealistic expectations, that, in most cases, leads to ruin.

Emotions in trading

Emotions are your worst enemy on the market and learning how to diminish their impact on your decision making is a rather tough task that can be achieved through years of experience. There are five common emotional mistakes that traders make and all of them have the potential to lead to massive losses, meaning you should do your best to overcome them. Those are the sensations of greed, fear, revenge, euphoria and pride. So lets turn our attention to each one of them.


Greed is probably your worst enemy and is just as hard to overcome as fear itself. Greed is a typical human trait, one on which the whole human society is based, of course to some extent. Each person has an instinctive desire to do something better, even the most lazy people, and to try to get a bit little more out of a certain situation. And although a small healthy amount of greed in life can be stimulating, there is no place for greed in trading, as even the desire to squeeze an extra 10 pips can be devastating, if an unexpected price reversal occurs on the way.

There is a very popular old saying among investors that “pigs get slaughtered” while bulls and bears make money. It means that the “greedy pigs” are bound to lose their money eventually, because they tend to hold to winning positions for an extended period of time in an attempt to milk each possible pip out of the market. And this doesnt come cheap, because it goes along with a huge risk of getting whipsawed by the market.

Another common mistake associated with greed is that people tend to add too much to a position, simply because the market has moved in their desired direction, instead of basing their decision making on sound analytical reasons. And it is not just that, it is very common for inexperienced traders to risk too much right from the start, instead of scaling in and using a proper money management system. Another frequently observed mistake derived from greed is that newbie traders choose high leverage right from the beginning, drawn by the possibilities of high returns. Well you can guess how that ends.


Euphoria is a variety of greed which arises after a trader has experienced a streak of winning trades or a single large winner. It builds an exceedingly positive sentiment and confidence, often luring you to enter and hold many new positions, usually in the same direction as the previous winner, which however can end badly.

This is the reason why some traders experience their biggest losses right after theyve had a good winning streak. It is very tempting to try and ride the winners wave immediately after youve earned some good profit, but you must keep your feet on the ground a draw a thick line between reality and the sensation that everything you do will turn to gold.

Fear is another overwhelming feeling, completely natural for each living creature, but unwelcome in a traders mindset. Fear can cause you to miss on profits by exiting a winning position earlier, miss on opportunities by not entering a position at all or induce losses when you exit a losing position too early and not give it a chance to turn profitable like your sound trading strategy had predicted.

Like animals, people feel fear as they encounter a source of threat, in our case the threat of losing money. Fear itself has a destructive power over your trading capital, but allowing it to get the best of you will then lead to further negative emotions such as anger, revenge and hatred. Overcoming fear requires a lot of practice, discipline and a lot of thinking beforehand.

Fear very often arises after a long series of losses and especially after having to swallow a loss larger than what you can emotionally absorb. By pondering before entering a trade and knowing how he instinctively reacts to stressful situations, a trader can learn to isolate the feeling of fear during the trading session and move past it.

As mentioned, a market player might be afraid to hold a position open due to fear of losing money. In many cases an unexperienced trader will exit a winning trade too early, due to fear of getting blown out by a price reversal. This is quite the opposite of greed and needs to be battled the same way – by relying on your solidly-tested trading strategy. This includes placing proper protective stops and price targets before you enter the position, ensuring that your trade plan will not be affected by newly arisen emotions during the trade.

The other two types of losses fear can incur – missing on opportunities by not entering a position at all or inducing losses when you exit a losing position too early, are based on the same principle and combated the same way – by trying to remain neutral and sticking to your previously determined strategy. One of the most efficient ways to overcome fear is to never risk an amount of money greater than what you are willing to lose on a cool head. If you have no problem with losing lets say 20 dollars and you risk only that amount, then you should, at least in general, remain calm during the session no matter what happens.


As mentioned above, revenge very often follows fear and the negative results it carries with it. For example, a trader might get agitated on missing a very good entry opportunity after having thought about it but decided not to enter due to fear of losing money.

“Revenge trading” commonly occurs after a trader experiences a loss, especially if its greater than what he could usually handle. This once again calls out for using a proper money management system.

Many market players commonly enter revenge mode after a trade, which they were sure will be successful, goes wrong causing the loss of money. There are two things to be considered here: 1. there is nothing sure on the markets; 2. protective stops are your friend.

As they get agitated, inexperienced traders will try to make up for the scored losses by jumping straight back in the market. However, because the decisions they are about to make will be based on emotions, its very likely that they will fail and probably lead to a greater loss than the previous one. Revenge can be associated with overconfidence, which stems from pride.


Pride is another major issue some traders encounter. It reflects a behavior where traders refuse to admit and recognize their mistakes, thus rendering them unable to learn from them and improve. Basically the stubbornness of these traders drags them down and instead of getting better at what they are doing, they just worsen their performance.

Not acknowledging your mistakes and being overconfident in your capabilities leads to poor risk management, without which, as we know, you are doomed to eventually fail. That is why (its a pattern), you must at all costs remain neutral and stick to your predefined trading strategy.

Effective trading mindset is of critical importance

First, a trader needs to establish a plan for trading. This includes coming up with a plan how to amass knowledge of the area (Forex trading), attending trading seminars, taking up online courses and spending as much time as possible to do a research on the matter. One should take his/her time to study variations of price charts, read interviews with managers, policymakers, experts, or day-to-day analysis in specialized media and why not even do macroeconomic, corporate or industry analysis of his/her own. The more knowledge one obtains, the easier he/she could manage issues, such as fear.

Second, a trader needs to know his/her trading strategy to the last possible detail. He/she, just being acquainted with the strategy is not enough. Precision and complete awareness of what signals from the market to expect, in order to enter into a respective position, are obligatory.

Third, a trader needs to implement a strict management of risk. If one does not follow the strict rule to manage risk on each trade, the chance to give in to his/her emotions eventually increases. The best way to protect yourself against the chance of becoming a highly-emotional trader, is to risk only the amount, which you feel completely convenient to lose. This should be applied on each position one enters.

To expect a loss on any trade gives you the awareness that there is always a chance of such a scenario to develop, a chance of something unexpected to occur and adversely impact your position.

Fourth, an investor should abstain from over-trading. There is no need to trade way too much. One should simply know his/her trading edge (strategy) at one hundred percent and enter into trades, only in case he/she makes sure an opportunity is present.

Most Important Of Trading Psychology And Discipline

There are many characteristics and skills required by traders in order for them to be successful in the financial markets. The ability to understand the inner workings of a company, its fundamentals and the ability to determine the direction of the trend are a few of the key traits needed, but not one of these is as important as the ability to contain emotions and maintain discipline.

i. Trading Psychology: The psychological aspect of trading is extremely important, and the reason for that is fairly simple: A trader is often darting in and out of stocks on short notice, and is forced to make quick decisions. To accomplish this, they need a certain presence of mind. They also, by extension, need discipline, so that they stick with previously established trading plans and know when to book profits and losses. Emotions simply can’t get in the way.

ii. Understanding Fear: When a trader’s screen is pulsating red (a sign that stocks are down) and bad news comes about a certain stock or the general market, it’s not uncommon for the trader to get scared. When this happens, they may overreact and feel compelled to liquidate their holdings and go to cash or to refrain from taking any risks. Now, if they do that they may avoid certain losses – but they also will miss out on the gains.

Traders need to understand what fear is simply a natural reaction to what they perceive as a threat (in this case perhaps to their profit or money-making potential). Quantifying the fear might help. Or that they may be able to better deal with fear by pondering what they are afraid of, and why they are afraid of it.

Also, by pondering this issue ahead of time and knowing how they may instinctively react to or perceive certain things, a trader can hope to isolate and identify those feelings during a trading session, and then try to focus on moving past the emotion. Of course this may not be easy, and may take practice, but it’s necessary to the health of an investor’s portfolio.

iii. Greed Is Your Worst Enemy: There’s an old saying on Wall Street that “pigs get slaughtered.” This greed in investors causes them to hang on to winning positions too long, trying to get every last tick. This trait can be devastating to returns because the trader is always running the risk of getting whipsawed or blown out of a position.

iv. Greed is not easy to overcome: That’s because within many of us there seems to be an instinct to always try to do better, to try to get just a little more. A trader should recognize this instinct if it is present, and develop trade plans based upon rational business decisions, not on what amounts to an emotional whim or potentially harmful instinct.

v. The Importance of Trading Rules: To get their heads in the right place before they feel the emotional or psychological crunch, investors can look at creating trading rules ahead of time. Traders can establish limits where they lay out guidelines based on their risk-reward relationship for when they will exit a trade – regardless of emotions. For example, if a stock is trading at $10/share, the trader might choose to get out at $10.25, or at $9.75 to put a stop loss or stop limit in and bail.

Of course, establishing price targets might not be the only rule. For example, the trader might say if certain news, such as specific positive or negative earnings or macroeconomic news, comes out, then he or she will buy (or sell) a security. Also, if it becomes apparent that a large buyer or seller enters the market, the trader might want to get out.

Traders might also consider setting limits on the amount they win or lose in a day. In other words, if they reap an $X profit, they’re done for the day, or if they lose $Y they fold up their tent and go home. This works for investors because sometimes it is better to just “go on take the money and run,” like the old Steve Miller song suggests even when those two birds in the tree look better than the one in your hand.

vi. Creating a Trading Plan: Traders should try to learn about their area of interest as much as possible. For example, if the trader deals heavily and is interested in telecommunications stocks, it makes sense for him or her to become knowledgeable about that business. Similarly, if he or she trades heavily in energy stocks, it’s fairly logical to want to become well versed in that arena.

To do this, start by formulating a plan to educate yourself. If possible, go to trading seminars and attend sell-side conferences. Also, it makes sense to plan out and devote as much time as possible to the research process. That means studying charts, speaking with management (if applicable), reading trade journals or doing other background work (such as macroeconomic analysis or industry analysis) so that when the trading session starts the trader is up to speed. A wealth of knowledge could help the trader overcome fear issues in itself, so it’s a handy tool.

In addition, it’s important that the trader consider experimenting with new things from time to time. For example, consider using options to mitigate risk, or set stop losses at a different place. One of the best ways a trader can learn is by experimenting – within reason. This experience may also help reduce emotional influences.

Finally, traders should periodically review and assess their performance. This means not only should they review their returns and their individual positions, but also how they prepared for a trading session, how up-to-date they are on the markets and how they’re progressing in terms of ongoing education, among other things. This periodic assessment can help the trader correct mistakes, which may help enhance their overall returns. It may also help them to maintain the right mindset and help them to be psychologically prepared to do business.

Bottom Line, it’s often important for a trader to be able to read a chart and have the right technology so that their trades get executed, but there is often a psychological component to trading that shouldn’t be overlooked. Setting trading rules, building a trading plan, doing research and getting experience are all simple steps that can help a trader overcome these little mind matters.

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