Mastering Your Mind
Why going to touch grass is essential as a trader
Trading is not just about numbers, charts, indicators, or strategies. It's fundamentally a mental game. And the harsh truth of it all is that your toughest opponent in markets isn't the hedge funds nor the algorithms; it’s yourself.
You might have the best strategy in the world, but you'll struggle if your psychology isn't aligned.
Like my argument of size being more important than entry, psychology is more important than strategy. Why is psychology so vital? Because your own mind can either be your biggest asset or your worst enemy in the markets. Think about it. The market really doesn't care how you feel. Charts and algorithms are emotionless. The real drama happens inside your head. A sudden price drop might trigger panic, causing you to abandon what was a solid trade. A string of green trades might spark overconfidence, tempting you into reckless trades.
"The human side of every person is the greatest enemy of the average investor." Jesse Livermore
Understanding psychology is empowering. It means that by mastering yourself - your emotions, mindset, and discipline, you can find your edge. Unlike trying to predict every market move you can control how you respond. This post will delve into the essential aspects of trading psychology: I’ll talk about common psychological pitfalls that trip up traders, dig into the science of why our brains react the way they do, and cover practical strategies to build a strong, resilient trading mindset.
Some of you don’t have the luxury of a shoulder tap from risk management, but whether you’re a retail trader or a professional, getting a handle on your psychology can transform your performance so I invite you all to read this post. The journey is not straightforward but the rewards are immense. I hope by the end of this read, you’ll not only pinpoint your weakness but will have some actionable techniques to keep your emotions from affecting your performance.
Let’s dive in.
Common Psychological Downfalls
At some point in your trading career, you will face a minefield of emotional and mental traps. These psychological walls can turn a solid strategy into an expensive string of trades. The first step to conquering these traps is awareness. To start, I will shine some light on some of the most common “traps” and how they affect your decision-making:
Fear of Loss
Fear is a powerful emotion – and in trading, the fear of loss can be paralysing. No one likes losing money, but when fear dominates your mindset, it leads to hesitation and poor decisions. For example, you might spot a great setup but freeze at the last second, fearing it could go wrong. This hesitation means missed opportunities: trades you should have won but never entered because fear held you back. Ironically, the fear of losing can also cause you to lose more by making you act irrationally. Something really common, and something I always receive messages about, is traders exiting winning positions too early at the first tiny sign of a pullback, grabbing a small profit out of fear that it might turn into a loss. In doing so, they cut short their winners and sabotage their profit potential.
Fear can also manifest as avoidance – avoiding taking any trades after a loss or avoiding the market altogether when it feels uncertain. While approaching with caution is healthy, excessive fear will keep you on the sidelines or stuck in low-risk, low-reward plays. Another way fear hurts is that it can stop you from cutting a bad trade, oddly enough. A trader might refuse to close a losing trade because they're afraid to take the loss. This leads to holding losers far too long, hoping they turn around, which often only deepens the losses. This behaviour is driven by a well-known bias called loss aversion – the pain of loss is so intense that we do irrational things to avoid realising it. Psychologists have found that losing a sum of money hurts roughly twice as much as winning the same amount feels good.
I can’t talk about this as some God, as I know one of my biggest problems with psychology is holding on to losers too long! The key to overcoming fear isn't to eliminate it (after all, some fear keeps you risk-aware). Something I have learned is to manage it. It starts with accepting that losses are a natural part of trading. Every successful trader faces losses – it's the cost of doing business. Instead of dreading them, plan for them. Again, it’s rich for me as I mainly trade with soft stops but use a stop-loss and predetermined risk management so you know exactly how much you'll lose if the trade goes wrong. When that risk is pre-defined and accepted, there's less to fear. Remember, your goal is to make good decisions, not to avoid every loss. By acknowledging your fear and preparing for the worst-case scenario, you take away its power to paralyse you.
Greed
On the flip side of fear is greed – the insatiable desire for more profits. Greed is just as dangerous and, if anything, more dangerous. This is the most common problem professionals have. It pushes traders into overtrading and excessive risk-taking. Have you ever had a great day where you exceeded what you’d normally be happy with but thought, "If I made this much, a few more trades could double it!"? This is greed whispering in your ear, tempting you to keep trading even when you should stop. It often leads to forced trades on subpar setups, larger position sizes than your plan allows, or ignoring your risk rules because you feel invincible. The result? Those extra impulsive trades can quickly turn a green day into a red one.
Greed also shows up as chasing trades. For instance, you see a stock flying and everyone on FinTwit is boasting about their gains. You feel that FOMO and jump in late, hoping to grab some profit. But buying out of greed and FOMO, without analysing the trade properly, often means you're the last one to the party – and you end up buying the top just before a reversal. Greed blinds you to warning signs and makes you deaf to that rational voice saying "this doesn't fit my strategy." Instead of methodically following your plan/strategy, greed has you trading on impulse and excitement.
Another aspect of greed is not knowing when to take a profit, this one I hear about a lot - I honestly think learning when to take a gain is the hardest thing about trading, my TLDR, best advice for when to take a profit is “hold it longer than you think you should” but that never really answers it. It's letting a good trade turn bad because you kept holding out for a bit more. Every trader knows the pain of watching an unrealised profit evaporate because they got too greedy and didn't stick to their exit plan. Greed tricks you into thinking the market will remain in your favour forever. Of course, markets move in waves – what goes up will eventually come back down. Failing to lock in gains or moving your stop because of greed can wipe out hours, days, weeks and months of good work.
To combat greed, practice continued discipline and contentment with your plan. Set realistic profit targets (daily profit goals if you’re a day trader) and honour them. If you hit your goal, consider calling it a day – or at least take a step back before deciding to continue. Remind yourself that markets are always there, and there will always be another opportunity tomorrow; you don't have to catch every last tick today. Use rules such as limiting the number of trades daily or sticking to setups with a proven edge. Instilling structure leaves less room for greedy whims to take over. Over time, you'll learn that consistent, modest gains beat the rollercoaster of boom-and-bust that greed often brings.
Revenge Trading
Revenge trading is the nasty cousin of greed and fear that appears when things go wrong. It’s born out of frustration. Imagine you just took a bad loss – maybe the trade felt unfair (you were stopped out by a tick), or you’re purely angry at yourself for a mistake. In the heat of that frustration, a voice in your head screams something similar to the following, "I need to make that money back right now!" This impulse leads to revenge trading: jumping back into the market with the sole aim of recovering your loss as quickly as possible. Unfortunately, these emotionally charged trades are rarely good ones.
When you're trading for revenge, you're not thinking clearly, you’re just chasing money. The frustration and anger from the loss carry into the next trade. You might take a trade that isn't really in your strategy, or you might dramatically increase your position size to win back the money faster. Essentially, you're chasing losses, much like a gambler doubling down after a bad hand. The outcome, more often than not, is an even more significant loss. One bad trade suddenly spirals into a series of bad trades because the focus has shifted from following a plan to settling a score with the market. But the market doesn't know or care that you feel wronged – it just is. Trading on tilt means your judgment is clouded, and you’re prone to repeating mistakes.
I’d struggle to believe you if you said you’ve not fallen into this trap at least once. The key to avoiding turning one loss into a meltdown is to catch yourself in the act. The moment you notice that you’re trading out of annoyance or desperation to get back at the market, walk away. Take a breather. Step away from the screen if you must. Go touch grass. Remind yourself that the market isn’t personal – losing trades happen to everyone. It's not about winning the next trade to erase the last loss; it's about making the next trade a good trade. Some fast money traders implement rules like: after two consecutive losing trades, take a 30-minute break, or if a single loss exceeds a certain amount, step away for the rest of the day. These rules exist to break the revenge cycle. As I always say, the market will be there tomorrow. It's better to clear your head and come back fresh rather than fight a battle in the heat of the moment that you're likely to lose.
Overconfidence
Don’t get me wrong, confidence in trading is great. However, overconfidence is a real recipe for trouble. After a winning streak or a big trade, it's natural to feel on top of the world. Your analysis has been spot on, your book is growing, and you start to believe you've cracked the code to the markets. This is when overconfidence can creep in and whisper in your ear that you’re unstoppable. Suddenly, the carefully calculated risks you used to take might seem too conservative. You might start upping your size because, hey, you've been right so far – why not double the trade size? You might skip doing the thorough analysis you usually do, convinced that your intuition is enough. Maybe you break your own rules, subconsciously thinking, “This time, I know it's going to work, so I can forget about my rules just this one off."
Five steps forward, five back - Sadly, the market has a way of humbling us all. Winning streaks can create a false sense of security and lead to reckless trades. One common scenario: a fast money trader has a string of green trades, then sizes up into the next trade (or few), expecting it to continue, only to suffer a loss that wipes out most of the prior gains. Overconfidence can also manifest as ignoring risk management. For instance, not bothering with stop-losses because "this trade can't possibly fail" or concentrating too much of your capital on one idea. It may even lead to overtrading – feeling like every idea you have will be a winner, so you jump into multiple positions without the usual due diligence.
The antidote to overconfidence is staying humble and grounded no matter the gain (or loss). Remind yourself frequently: even the best traders in the world have losing trades. Treat every trade with equal respect, assessing the risk as if it could be a loser (because it absolutely could). Stick to your routine and checklist, especially after significant gains. Some disciplined participants intentionally reduce their position size after a series of gains, precisely to counteract any overconfidence bias creeping in. Recognise that streaks come and go, but what keeps you profitable long-term is a consistent approach. Celebrate your successes, and you should enjoy the fruits of good trading, but don't let winners inflate your ego. The goal is confidence in your strategy, not in feeling invincible. Markets can change anytime, and staying humble means you'll be prepared for when they do.
Analysis Paralysis
Have you ever stared at a trade setup for so long, weighing every indicator and piece of info that you have, that by the time you decide, the opportunity is gone? That's analysis paralysis in action. It’s wise to do your homework, but it's possible to overthink to the point of inaction. This usually stems from a fear of being wrong – you seek that one extra confirmation, that last bit of info to assure you the trade is a sure thing. The irony is, there's no such thing as a sure thing in markets, and you know this. By over-analysing, you delay until the odds actually worsen (or the trade moves without you). You end up missing out on many good trades because something wasn’t perfectly aligned.
Nowadays, traders suffering from analysis paralysis often feel they need to monitor an overwhelming number of indicators: price action, volume, RSI, MACD, moving averages, Fibonacci levels, news feeds, economic data – the list is endless. While analysis is essential, too much information can easily cloud your judgment. One indicator says buy, another says sell, and a news headline suggests caution, but positioning says it’s a buy – and you become like a deer in headlights. Meanwhile, the trading opportunity that was initially clear has now passed or become less attractive. Overthinking can also mean you question your own strategy constantly. After a couple of losses, you might start tweaking and second-guessing your strategy, adding more filters and signals until it's so complicated that no trade ever meets all the criteria. This is a slow death for a trader’s progress, PnL and career.
To overcome analysis paralysis, I know I say it so much to subscribers: simplify!!! (and trust your strategy + gut). Strip your strategy down to the most important factors (the ones that truly give you an edge) and commit to those. Accept that you'll never have 100% certainty. Trading is a game of probabilities, not certainties. At some point, you have to pull the trigger on a trade if the odds are in your favour, even though there are no guarantees. It helps to set a time limit or a checklist for your decision-making. For example: if your key criteria are met, and you've done a quick risk/reward assessment – then place the trade without overthinking it. One mental trick is to ask, "If I was in this trade already, what would I do?" Often, that removes some of the fear of initiating. Also, remember that missing a trade can be as costly as taking a losing one. If you find yourself routinely watching winners go by that you wanted to take, it's a sign that analysis paralysis is at play. By simplifying your approach and being willing to act on your analysis once it's good enough, you can break free of the paralysis and start capturing those opportunities.
The Science Behind Trading Psychology
Now that we've looked at the common downfalls on a practical level let's turn to why our brains behave this way when we trade. Understanding the science and psychology behind our decisions can demystify our emotions and help us manage them better. In this section, I’ll explore how cognitive biases cloud our judgment, how brain chemistry (like dopamine) affects trading behaviour, what the emotional rollercoaster of trading looks like, and how we can develop emotional resilience to handle it all.