First, you will need to learn to ignore your emotions. Trade like a machine. The foremost emotions to block out are the emotions of greed and fear. Greed leads traders to keep trading when they should stop (or perhaps to hold onto a security that they should sell in the hopes of realizing even more gains), and fear leads traders to stop trading when they should keep going. For example, an investor who is paralyzed with fear may refuse to sell a sinking security and take a loss, instead choosing to let that loss mount and mount due to the fear of the loss and the hope of a turnaround. Successful traders recognize the points to take a loss and move on, because their minds aren’t clouded by emotion.
Second, make a strategy and stick to it. Trading psychology and mindset necessitates having a guide other than emotions, and a comprehensive trading strategy based on market research accomplishes this goal. Now, having a strategy does not mean that you can put your investing on auto-pilot and ignore it.
The third step to successful trading is to understand when and why you should tweak your trading strategies. Again, it is important to have this identified so that numbers can make your decisions instead of emotions. The heart is unreliable, but numbers don’t lie.
Fourth, ignore your past failures and successes. Treat each trade and each situation like it is completely new. By doing this, you set yourself up to be able to make clear-headed decisions without dragging your emotional baggage into the trade.
Fifth, and perhaps this is most important, make sure that you have a solid financial base before you start trading. You need to have your financial house in order and trade in the appropriate manner in order to be successful. Don’t trade with your emergency fund or your grocery money. If you are not looking at your trading to be your financial salvation, your chances of success are much greater.