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Gate.io Blog Gate. io AMA : Review Trading Psychology, Trading Risk Management and Daily Trading Principal | Oct.13th
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Gate. io AMA : Review Trading Psychology, Trading Risk Management and Daily Trading Principal | Oct.13th

21 October 17:20

Q: Let's review below for today's AMA.

1.Trading Psychology

2.Trading Risk Management

3.Daily Trading Principal

A: Great, let's go through the above one by one.

Trading Psychology

Definition

1.Technically, these are two different things. The market psychology and a trader’s psychology are related.

2.As a trader, your mindset and your decision making is part of the market.

3.The way you think influences what you decide to do. That in turn influences the market movements and helps form the aggregate market psychology.

Q: What are the emotions of trading?


A:

Fear/Nervousness

A common cause of fear is trading too big. Trading with improper size magnifies volatility unnecessarily and causes you to make mistakes.

Conviction/Excitement

Conviction and excitement are key emotions you’ll want to feed off, and you should feel these in every trade you enter.

Greed/Overconfidence

Your greed may have been the result of doing well, but if you aren’t careful you may slip and end up in a drawdown.


Recap of Trading Psychology

1.Preparing your mind for trading, self-discipline and patience are the key components to success.

2.Developing a trader's mindset will change you on many levels, improving your responses to risk and reducing knee-jerk reactions to frustrating situations.

Trading Risk Management

1.Risk management helps cut down losses. The risk occurs when traders suffer losses. If the risk can be managed, traders can open themselves up to making money in the market.

2.Having a strategic and objective approach to cutting losses through stop orders, profit taking, and protective puts is a smart way to stay in the game.

Several steps to measure the risk levels.

Step 1, Risk appetite

In the trading world, risk appetite is the amount of capital you can put at risk.


The amount corresponds to your risk appetite, usually between 10-20% of your income for most people.

Step 2, Risk tolerance

Risk tolerance refers to your comfort levels with regard to putting capital at risk.


Start off by risking a very small amount and then increase the amount on each subsequent trade.

Step 3, Personality

The third aspect of a self-assessment concerns your personality as it relates to taking risks. Some people are risk- a verse by nature, while others are more adventurous.

Step 4, Trading approach and strategy

In this step, you try to tie the previous three steps in with the most appropriate strategy or trading method. This concerns the markets or asset classes you trade, the time frame, and the amount of leverage you will use.

Step 5, Timeframes

If you trade with short timeframes, you will risk less on each trade, which means you can use more leverage.


If you are more cautious and like to trade strategically, a longer timeframe may be more appropriate.


Recap of Trading Risk Management:


Planning your trades.

Successful traders commonly quote the phrase: "Plan the trade and trade the plan."

1.Don't trade too frequently.

2.Always set up Stop-loss (S/L) and take-profit (T/P), to avoid big loss.

Consider the ratio of the investment

1.Usually we control the investment of about 30% of all of our capital. Even if you are very sure about the trend, don't use more than 60%.

2.Set position at low level, plus reasonable leverage.

3.When you are sure about the trend, gradually add up your position or decrease your position.

4.Set up Stop-loss (S/L) and take-profit (T/P) at reasonable points.

Daily Trading Principal

Firstly, go to the details below and try to practice it.

1. Trading Is Not Gambling


2. Plan Your Trading Plan and Stick to the Plan


3. Learn to Lose


4. Define Trading Objectives


5. Always Trade with Stop Loss


6. Financial Markets Are Eternal


7. Be Careful of Over Leverage and Overtrading


8. Discount Market Rumors from Market Facts


9. Take Care of Your Trading Costs


10. Trade with a Clear Mind

Some points to be noted

1.Use a smaller test account for learning and strategy development

I find it beneficial to have one or more accounts dedicated to learning, testing, and new strategy development.

2.Backtest your strategy

Traders can backtest some or all of the system, and backtests can provide performance statistics, including but not limited to:


Win rate: The expected ratio of winning trades to losing trades.


Profit factor: The expected profit to loss ratio of all transactions.


Maximum loss: Over time, the system compares the maximum percentage of losses to previous highs.

3.Use smaller positions

I always think that keeping a small position size helps me maintain a sense of balance and patience. Conversely, when the size of the position is too large, fear will override the discipline and patience required to execute a trading strategy.


Recap of Trading Principal:

1.If we control all the above points of today, we can be a professional day trader.

2.No gambling in the trade.

3.Emotion is the biggest factor.

4.Trade with money you can afford to lose.

5.Start small.

6.Don’t quit your day job until you can run your life with the trading.


Finally, I wish everyone good luck.

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