Index Psychology Principles

Trade with the trend only

Stay focused on the large market trends and don't try to react to every price action move. "The trend is your friend!" follow it. Investors need to follow the trend when trading indices online. One of the principle of market psychology is to always trade with the trend.

Most beginners will enter the trading market when the price chart shows a steep movement. These traders do not even take the time to understand what are the forces that are causing such a movement and thus make the mistake of being too eager to enter the trading Market: they want to rush and be the first ones to enter the trading market after an economic data is published, without any regard to the direction of the trend only to finally realize that it was just a indices trading whipsaw when they are already in a losing trade position. In such situation, most seem fearless, not fearing making losses & only worrying that other traders are earning and making profit while they sit on the sidelines. In Market Psychology this is the in the opposite trend of what traders should be doing. In your trading plan you should write clear guidelines within their indices plan on how to avoid this type of mistake.

In Indices, the rule is to never be too eager to enter the trading Market: learn to overcome the feeling of worrying that you'll be too late to make a profit. Take time to analyze what is the impact of the economic information released.

Sometimes this breaking news does not dictate the forecast of the likely price direction. You have to analyze carefully if it will have a big impact on the market prices. Most often, these information generates false entry signals.

It is important that you overcome your eagerness to be the first one to enter the trading market using Indices psychology. You have all the time to analyze the impact of this breaking news before you enter the trading market.

It may take more time but your trades will be moving in the right direction. This is what we call following the market trend.

Trade with a disciplined plan

Investors shouldn't base their trade positions on a just a hunch. Positions should only be executed using a well methodized plan. Plan should specify the rules of entry and exit. Use the psychology section to specify your trading mindset when opening stock trades.

Investors should examine all of the factors carefully before registering a position and they shouldn't let fear or greed or someone else's influence to cause them to enter or exit a position before their indices system gives a trade signal. Do-not let the temporary circumstances erode your conviction, use discipline to follow your plan.

Using a consistent and disciplined plan eliminates the need to make rush decisions based on short-term price action moves.

Cut your losses and let your trading profits run continuously

Some traders hold onto the losing positions for a long duration of time in the hopes that these trades will move in their trade direction after a period of time. However, this never happens and the trading market keeps moving against these losing positions & makes them lose even more.

The other mistake that traders make is to not book the profits at the opportune time, all investors should try to maximize profit per trade but at the same time be aware when the trend changes and close out positions at that time & not wait while their positions in the trading market are open. Only keep positions as long as the trend is in place and close once the trend indicates signs of slowing.

Losing Indices investors see loss as failure. Winning traders see loss as a studying experience, this is one principle of trading psychology which helps them improve their trading profits.

When winning traders make a loss, they have not failed, they've just learned something new about the way the trading market works. Winning traders always look at the big picture & stick to their Index plans.

Many traders in a losing trading position wait for the best time to cut a loss. However, the best time to exit never comes and the trade continues to lose money. The best time to exit the trade is when the loss is low i.e. Less than 30 pips but not when the trading loss is hundreds of pips. Your account might be wiped out while still waiting for the trend direction to move in your favor.

A losing position from the begin is likely to stay like that - A Popular Saying by Traders.

Use psychology and learn to cut losses and avoid holding onto losing positions due to the hopes that the trading market will move in the other direction. There is always a new opportunity to trade as long as your margin isn't tied up in a losing trading position.

An investor should get released from a negative psychology and apply the money to do another indices trading transaction. An investor should cut the losses quickly and move to profit making positions. Some investors will end up sitting on a losing position; they usually allow the price to move against their position many pips while hoping that the trend direction turns & goes back in their favor.

Profits are made when trade positions are closed not when they are opened, therefore be ready to close your open trade position transactions as many times as possible.

It is a wrong belief that each trade transaction will gain profits. One can still make money even if only half of his transactions are profitable. Question is how one can make profit with only half of his trade transactions winning, the answer is that one should keep the losses at a minimum and open other profitable trade transactions. This way the greater number of profit trade transactions offset the trade losses.

To learn and know more about psychology and how to transform your mindset using a Indices plan go the lesson Indices Plan.

Indices Psychology Section on Indices Plan

Index Plan - Psychology Section

Study More Lessons and Tutorials & Guides:

Trade Stock Indices

Index Psychology Principles

Trade with the trend only

Trade with a disciplined plan

Cut your losses and let your trading profits run continuously