Module 10: Psychology of Trading & Maintaining Discipline. Flashcards
Question: What is trading psychology?
Answer: Trading psychology refers to the emotional and mental aspects that influence a trader’s decisions and behaviors.
Question: Why is psychology important in trading?
Answer: Emotions like fear and greed can lead to impulsive decisions, increasing risk and reducing profitability.
Question: What are the most common emotional biases in trading?
Answer:
Fear: Leads to early exits and missed opportunities.
Greed: Causes traders to take excessive risks.
Overconfidence: Results in poor decision-making.
Confirmation Bias: Ignoring data that contradicts existing beliefs.
Question: How can traders control fear in trading?
Answer: By using stop-loss orders, trading smaller positions, and following a well-defined trading plan.
Question: What is revenge trading?
Answer: Revenge trading is the act of making impulsive trades after a loss to recover quickly, often leading to more losses.
Question: How do traders avoid revenge trading?
Answer: By accepting losses as part of the process, stepping away after big losses, and reviewing their strategy before re-entering the market.
Question: What is FOMO in trading?
Answer: FOMO (Fear of Missing Out) is when traders enter trades impulsively because they see a stock moving quickly and don’t want to miss the action.
Question: How can traders avoid FOMO?
Answer: By sticking to their trading plan, waiting for proper setups, and not chasing price movements.
Question: What is patience in trading?
Answer: Patience means waiting for the best trade setups instead of forcing trades based on emotions.
Question: What are the key habits of disciplined traders?
Answer:
Following a trading plan.
Using stop-loss and risk management strategies.
Journaling trades for improvement.
Avoiding impulsive decisions.
Question: What is trading confidence?
Answer: Trading confidence is having trust in your strategy and execution without being influenced by emotions.
Question: How can traders build confidence?
Answer: By backtesting strategies, paper trading, and learning from past mistakes without emotional attachment.
Question: What is decision fatigue in trading?
Answer: Decision fatigue occurs when traders make poor choices due to mental exhaustion from excessive trading decisions.
Question: How can traders prevent decision fatigue?
Answer: By limiting the number of trades, taking breaks, and using predefined trading rules.
Question: Why is journaling important for trading psychology?
Answer: A trading journal helps traders analyze their emotions, identify mistakes, and improve decision-making.
Question: How can traders stay disciplined during a losing streak?
Answer: By reducing position sizes, reviewing their strategy, and avoiding emotional decision-making.
Question: What is the impact of mindset on trading success?
Answer: A strong mindset helps traders stay focused, manage emotions, and maintain confidence in their strategies.
Question: How can traders maintain long-term discipline?
Answer: By setting realistic goals, following their risk management plan, and continuously improving through education and practice.
