Trading psychology plays a bigger role in our results than most new traders realize. Here are 9 ways psychology may be negatively affecting your trading, and what to do to fix it.

Maybe you have read lots of books, even practiced trading in a demo account and did well, but for some reason, you can’t seem to make money (or are losing money) when trading for real. The culprit isn’t always a lack of knowledge, often it is a matter of psychology.

Trading is about finding a strategy (or several) and then implementing them over and over again. The strategies are put into a trading plan that set guidelines for when and what you will trade, how you will manage risk, and how you will enter and exit positions. Once you have a trading plan, it may need to be revised as you gain more experience, but most of the heavy lifting is done. While it is possible to get bad information online or in books/courses, if you are still struggling a year into your trading journey (it typically takes the traders that become successful at least 6 to 12 monthsto start showing more consistent profits) more often than not lack of information is not the problem. How we think is.

Changing how we think, and being aware of mental traps nearly all of us fall into can help us better utilize the trading information and plan we already have. If you are struggling, hit the pause button on being an information junkie or a trading plan tinkerer. Take some time and consider these trading psychology pitfalls you may be falling into.

Here are nine ways your psychology is secretly affecting your trading.

Overexposure or Desensitization

If you are reading through the following list and say to yourself “Yeah, yeah, I know all this” and then skip over it. That’s overexposure. It means you are desensitized to certain types of information. Most new traders go on an information binge when they start out. They read the same general things over and over again, such as make a trading plan, sticking to the plan, calculating the proper position size, only risk 1% of the account per trade, etc. This is all good advice, yet it is glanced over and discarded because traders view it as stuff they already know.

Don’t mistake knowing with being able to do it. If you are struggling, go back and actually work onthe small things you are taking for granted.

It’s the things we are unwilling to admit we need to work on where the problem typically lies. I get lots of emails from people who have been trading for years but never had any success. They tell me their main issues and sometimes I look at a few of their trades. Almost always they have a decent strategy, but the simplest thing is wrong…and it is probably one of the first things they learned. Most of the time though, when I point it out, they dismiss it and continue looking for a complex solution to a simple problem. They have heard it before, so are desensitized to implementing the advice.

The people who improve tend to always check back in on their basics…no matter how long they have been trading and no matter how much knowledge/experience they have or think they have.

Loss Aversion

Humans have a natural tendency to avoid loss. But losing is part of the trading game. To avoid losses people hold onto losing trades, or “freeze” when its time to the pull the trigger on a new trade. Both are versions of loss aversion. The person holding onto a losing trades doesn’t want to accept the loss they’re facing. The person who is afraid to get into trades or takes profits very quickly is afraid of potential losses or losing what little they have.

This issue stems from a psychological quirk we all have: our mind perceives losses as having twice the impact of a similar gain. Think about that for a second…the pain of losing your house far outweighs the joy you would feel in winning another house. Two houses are great. Nowhere to live is far worse. Going from $10,000 in your account to $20,000 is good, but going from $10,000 to $0 would likely bring up far stronger feelings! A loss takes away what you already have, and worked for, so losing feels more significant than a proportionate gain. This psychology affects everything, including all the trades we make.

If you want to trade, fully accept losses and cut them when your trading plan tells you to. Hanging on to a trade or hoping it will turn around is your mind tricking you into thinking a losing trade is a bigger deal than it actually is. Take the loss while it small and manageable. And take all the trades you are supposed to. If you have a solid and tested plan, any losses are reasonable and part of being a successful trader.

As long as your wins offset your losses, then there is no reason to fear losing trades. If you are losing money consistency, then there is a reason to be fearful. Use that fear to stop trading and improve your plan (or psychology). See How Much a Day Trader Can Make to see what’s possible even when losing almost half of your trades.

Excessive Evidence Seeking or Fear of Unknown

This is an extension of loss aversion, except excessive evidence seeking or fear of the unknown usually plays a role before you take a trade. Pro traders have a system, and when a trade signaloccurs they step in and trade. The novice wants lots of confirmation. They wait till late in a rally to buy, but by then most of the profits are gone and the trend reverses.

I am a trend trader, and many of my articles are on trend trading. This prompts many emails from readers asking “…but how do I know what the trend is going to do?”

You don’t. For me, an uptrend starts with an impulsive wave up that is bigger than the last impulsive wave down. I wait for a pullback, then a consolidation (usually, not always), and then when the price starts to rise again I buy. I don’t know what is going to happen, but over tens of thousands of trades I have found that it works more often than not. On any single trade I don’t know what will happen. I see the pattern and then embrace the unknown by taking a trade.