Trading Psychology
The mental discipline required to execute risk management rules consistently through all market conditions
Trading psychology in the context of risk management addresses four primary traps: revenge trading (sizing up after losses to recover faster), overtrading (taking too many low-quality setups out of boredom or fear of missing out), excessive conservatism (reducing risk or skipping valid setups after drawdowns out of fear), and overconfidence during winning streaks (sizing up because you feel "hot"). The core principle is consistency — risking the same percentage on every trade regardless of recent results. This requires accepting that individual trade outcomes are random while the system edge plays out over many trades. Building consistency requires pre-defined rules: fixed risk per trade, maximum daily trades, maximum daily loss, and process-based trade grading rather than outcome-based evaluation.
✓How to Recognize
- •Revenge trading: emotional response to losses, sizing up to recover
- •Overtrading: too many trades per day, not waiting for proper setups
- •Fear-based conservatism: skipping valid setups or reducing risk after losses
- •Overconfidence: sizing up during winning streaks based on "feel"
⚡How to Avoid
- →Changing risk percentage based on recent results (wins or losses)
- →Trading without a pre-defined daily loss limit and maximum trade count
- →Grading trades by outcome instead of execution quality
- →Treating demo/sim differently from live — build proper habits from the start