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Trading Psychology – Concepts, Control & 10 Best Books

Trading psychology is the study of human behavior in trading markets. It aims to understand why people make trading decisions, how these decisions are made, and what factors influence them.

It also looks at how trading can impact emotions and decision-making, and how this can lead to different trading outcomes.

In this guide, we are taking you through more of the key concepts surrounding trading psychology, how to understand and control your own trading psychology and behaviors, before moving in to a list of 10 of the best trading psychology books you may want to explore further.

trading psychology

Key concepts of Trading Psychology You Should Know

Trading psychology can be used to help traders make better trading decisions, by understanding their own behavior and that of other market participants. It can also help them manage their emotions better, so that they don’t let these influence their trading.

There are a few key concepts that are important to understand in trading psychology:

  • Behavioral biases: these are judgments or decisions that we make which are not based on logic or reason, but on our emotions, experiences, or preconceptions.
  • Cognitive biases: these are judgments or decisions that we make which are not based on logic or reason, but on our own mental processes.
  • Anchoring: this is when we base our trading decisions on a single piece of information, without considering other relevant factors.
  • Overconfidence: this is when we believe that we know more than we actually do, or that we are more likely to be right than wrong.
  • Risk aversion: this is when we avoid taking trading risks, even when they could lead to profitable outcomes.
  • Loss aversion: this is when we are more motivated to avoid losses than to make gains.

How To Understand And Control Your Psychology Whilst Trading

day trading psychology different moods

When it comes to day trading psychology is everything. It can be the difference between making a profit and taking a loss. Sometimes it is important to be a good loser, knowing when to take a loss, but make it a small one, so you can move on to experience bigger successes.

That’s why it’s so important to understand and control your own psychology when trading so you can manage the risk of your account. Whether you are trading stocks, forex, CFDs, or commodities, your psychology remains vital. Here are some of the ways you can keep your mind on track:

1. Understand your triggers. What causes you to make impulsive decisions? Is it fear of missing out? FOMO can lead to bad decision-making. If you take some time to reflect on what is causing these impulses, you can be better equipped to counter in those moments.

2. Set realistic goals. Don’t expect to make a million dollars overnight. trading is a marathon, not a sprint. By setting realistic goals, you can better manage your expectations and avoid getting disappointed or frustrated.

3. Be patient. Rome wasn’t built in a day, and neither is your trading account. Don’t expect to see results immediately. It takes time to learn and master this craft. Be patient and stick with it.

4. Stay disciplined. following your trading plan, even when it’s hard, is key to success. If you let your emotions get the best of you, it will only lead to making bad decisions.

5. Be mindful of your risk tolerance. trading is risky. There’s no two ways about it. But that doesn’t mean you have to throw caution to the wind and risk everything. Know your own risk tolerance and stick to it.

These are just some of the ways you can control your psychology when trading. If you can do that, you’ll be well on your way to success.

Now let’s move on to the 10 best trading books.

10 Best Trading Psychology Books

For some, understanding how trading psychology works, and learning a few key concepts will be enough to give you food for thought and ammunition to add to your trading plan.

For others, you will be hungry for a lot more detail than we can delve into here, with the theory and the formulations put together into a collection of words.

In other words, you will want to read some of the best trading psychology books out there to further expand your knowledge on the topic.

1. “Trading in the Zone” by Mark Douglas

best trading psychology book

This book is all about trading psychology and how to use discipline and confidence to build a winning formula.

Douglas breaks down the different psychological traps that traders can fall into and how to avoid them. He also provides helpful techniques for getting into the zone, where you’re trading at your best.

2. “The Disciplined Trader” by Mark Douglas

This book is a great companion to “Trading in the Zone.” It’s all about staying disciplined in your trading. Douglas lays out different trading strategies and how to stick to them even when it’s hard.

3. “Market Wizards” by Jack D. Schwager

This book is a must-read for any trader. It features interviews with some of the most successful traders in history, who share their insights and wisdom on what it takes to be successful.

4. “The New Market Wizards” by Jack D. Schwager

This is the sequel to “Market Wizards.” In it, Schwager interviews more successful traders and gets their insights on trading psychology, risk management, and more.

5. “Reminiscences of a Stock Operator” by J. Livermore

This classic book was first published in 1923 and is still relevant today. It tells the story of Jesse Livermore, who was one of the most successful traders of his time. The book is packed with trading wisdom and insights that are still applicable today.

6. “The Warren Buffett Way” by Robert G. Hagstrom

This book is a great introduction to investing, but it also has some helpful insights for traders. It covers Buffett’s investment strategy and how he thinks about risk.

7. “One Up on Wall Street” by Peter Lynch

This book is another great introduction to investing. In it, Lynch shares his insights on how to pick stocks that will outperform the market. He also talks about the importance of doing your own research.

8. “The Intelligent Investor” by Benjamin Graham

This is a classic book on investing that was first published in 1949. It’s full of wisdom on how to think about investing and managing risk.

9. “Security Analysis” by Benjamin Graham

This is another classic book by Graham, this time on security analysis. It’s a must-read for any trader or investor who wants to do their own research.

10. “Common Stocks and Uncommon Profits” by Philip A. Fisher

This book is all about finding stocks that have the potential to outperform the market. Fisher shares his insights on how to do your own research and identify these types of stocks.

These are just some of the best trading books out there. If you want to be a successful trader, it’s important to learn from those who have come before you. These books can provide valuable insights and help you develop your own trading strategy.