Daytrading is 80% psychology

Daytrading psychology – within daytrading, you talk a lot about the importance of The 3 M‘s that stand for:

Money management
Mindset / Psychology

Most new daytraders immediately throw themselves over the method section. They want to learn all that is to learn about indicators, moving averages and various setups with exotic names. There is certainly nothing wrong with that, but it’s just not enough if you want to be a successful daytrader.

After some time, Money Management is also an incredibly important part of trading, so you can learn to manage your risk – and equally important – reduce the likelihood ruin as much as possible.

But we believe that 80% of the success lies in the following:

The most important thing for a daytrader is the right mindset/psychology

Most new daytraders will shine a bit on the headline, but we can guarantee that all seasoned daytraders will give us justice in this postulate. What really determines whether you are successful as a daytrader is how well you master the mental game. We will go as far as to claim that 80% of the success of a daytrader is determined by psychology.

So let’s take a look at what pitfalls exist when you step into daytrading psychology.

Overconfidence because of early success

No matter how good or bad a daytrader you are, you’ll sometimes hit a number of winning trades in a row. It can be 5, 10 or even 20 successful trades that go exactly as you wanted. In these cases, many daytraders experience a mental condition, as one calls the Jesus’ syndrome. It refers to the feeling that you can walk on water.

One is in his wisdom and convinced himself that he has found the Holy Grail for everlasting profit in the stock market and at the same time begins to go significantly less into disciplined trading and one’s own rules.

But what could go wrong?

The answer to this is: EVERYTHING!

The moment you begin to picture yourself that daytrading psychology is easy, it usually starts very fast to go wrong with the trade results.

We usually say that the worst thing that can happen for a completely new daytrader is that they are experiencing three months of success right at the start. It may sound mysterious, but what we believe is that one should rather learn the respect for the market at the start, while the trades and losses are small. Overconfidence usually leads to financial ruin pretty quickly.

Revenge trading – Daytrading psychology

Most daytraders have experienced the feeling of wanting revenge over the market.

You may have been sitting half a day trading, and things have generally just gone the wrong way. The rules in one’s trading plan have been honoured up to the point, but the market has been against me. Now it’s the case that the market does not have a personality, and the market just acts as it does.

But many traders know the feeling that it’s a struggle between one self and the market.

If you come into this form of mental revenge, you often begin to act outrageously. You take trades that are completely outside one’s system just to show the market who’s in charge. This is a dangerous slope to come across. If you notice an increasing irritation on the market, it is very important to take a break away from the screen and take some fresh air.

There is always a new trading day tomorrow.

Daytrading on adrenalin is dangerous

If you often experience sitting in the middle of a trade and feel the sweat on the forehead and your hand becomes clammy to the computer mouse, it is indicative of an excessive level of adrenaline.

This adrenaline discharge usually takes place when you have a very large trade, where the outcome will have an excessive impact on your capital.

If you have made a trade where the worst scenario will mean that you lose 10-20% of your entire trading capital, it’s probably because of adrenaline. The body interprets the situation as a real danger and goes into stone age fashion, as your body thinks it must fight for life.

If you regularly experience the above, then it is most likely a clear indication that you are taking excessive risks in your trades. Trading should not be exciting, nerve-racking or an adrenaline rush. It should be a solid and disciplined work method, which you repeat over and over again with relatively small risk per trade.

Our experience is that in the long run we have much better results with daytrading by taking a little less risk on more trades because we can think objectively and cool even when the trades go the wrong way over and over again.

In addition, of course, you should also take good care of your health. You would like to spend a lot of years trading.

The importance of journaling

When we teach daytrading psychology, we always tell about the importance of keeping a trading journal of your past trades.

In this journal, we write all our trades down every day. But besides just entering entry, exit, profit, etc., we also write if we’ve acted with different emotions.

For example, we could write something like:

  • I felt guilty, so I completely ignored the resistance in 9,900.
  • Took the trade in frustration over the last 4 losing trades
  • Was impatient and guessed what the market would be like. Amateur Error!
  • Etc.

All this helps to give us a detailed overview and insight into whether – or rather how often – we get caught in an emotional trap when we are daytrading. Perhaps we can see that we begin to become more impatient during the afternoon or that we get frustrated more quickly and want revenge over the market or recover the lost when we trade Dow late in the evening.

Try to be as objective as possible

It’s easier said than done. Definitely.

But try to build a trading method that lets you feel as emotional calm as possible while trading.

Doubt, revenge, impatience, courage and other emotions are your worst enemies if you want to be a successful and disciplined daytrader.

Hans Henrik Nielsen

Hans Henrik Nielsen is a very experienced day and swing trader, teacher and publisher, who in the last couple of years has produced 80-134% profit on his day trading.

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