Trading Psychology and the 5 Rules to follow

Summary

In this video, Artie from the Moving Average channel addresses the common pitfalls of day trading, such as emotional trading and lack of a structured strategy. He empathizes with viewers who have lost money and offers five essential rules for improving trading psychology. These include adopting a rules-based trading strategy, avoiding emotional decisions, practicing proper risk management, not over-trading, and steering clear of revenge trading. Artie emphasizes the importance of a systematic approach to trading, using a demo account for practice, and maintaining a calm demeanor to achieve consistent profitability.

Takeaways

• 😢 The video addresses the emotional pain of losing money in trading and offers support and guidance for improving trading psychology.
• 📉 The speaker acknowledges that many traders enter trades impulsively based on emotion rather than a systematic approach, leading to losses.
• 📈 The importance of having a rules-based trading strategy is emphasized to avoid emotional decision-making in the market.
• 📝 A rules-based strategy involves specific criteria that must be met before entering a trade, such as confluence of indicators or patterns.
• 🚫 The video warns against trading on emotion, which often results in losses due to the 'gambler's mentality' and market manipulation.
• 💰 Risk management is highlighted as crucial for successful day trading, with a focus on setting appropriate risk-reward ratios.
• 🛑 The necessity of having predefined take profit and stop loss levels before executing a trade is stressed to maintain discipline.
• 🔍 Advised against overtrading, which can lead to a loss of focus and increase the chance of making mistakes.
• 🔥 The dangers of revenge trading after a loss are discussed, as it often leads to further losses due to emotional reactions.
• 🤝 The speaker encourages viewers to watch more videos on the channel to learn specific strategies for different trading styles.
• 📚 The benefits of practicing on a demo account are mentioned to help traders develop a rules-based system and reduce emotional involvement in trades.

Q & A

What is the main focus of the video?

The main focus of the video is to address the issue of trading psychology and to provide five rules for improving it, specifically for day traders who have experienced losses.

Why do many traders lose money according to the video?

Many traders lose money because they trade based on emotions, without a proper strategy, and often fall into the trap of market manipulation, which leads to a lack of discipline and poor decision-making.

What is a 'rules-based trading strategy' as mentioned in the video?

A 'rules-based trading strategy' is a systematic approach to trading where specific criteria or 'rules' must be met before entering a trade. It involves back-testing and forward-testing a strategy to ensure consistency and reliability.

What are 'confluences' in the context of trading?

Confluences refer to multiple indicators or signals that align to support a trading decision. In the video, it is suggested that having at least three confluences is necessary before entering a trade.

Why is it important not to trade on emotion according to the video?

Trading on emotion can lead to impulsive decisions, which often result in losses. It is important to avoid emotional trading to maintain discipline and follow a systematic approach based on a rules-based strategy.

What is the significance of risk management in day trading?

Risk management is crucial in day trading as it helps to control the amount of money one is willing to risk per trade. Proper risk management ensures that even if a trade goes against the trader, the overall impact on the trading account is minimal.

What is the recommended approach to avoid over-trading?

The recommended approach to avoid over-trading is to focus on a limited number of trading pairs or indices, and to simplify the trading setup by using fewer indicators and lines on the charts.

What is 'revenge trading' and why should it be avoided?

Revenge trading is the act of making trades in an attempt to recoup losses from previous trades, often driven by anger or frustration. It should be avoided because it leads to emotional trading, which typically results in poor decisions and further losses.

How does having a rules-based system affect a trader's emotional state?

Having a rules-based system helps to alleviate emotions from trading by providing a clear set of instructions to follow. This leads to a more relaxed and calm approach to trading, as the trader is not making decisions based on emotions but on a proven strategy.

What advice does the video give for new traders to improve their trading psychology?

The video advises new traders to practice on a demo account, develop a rules-based strategy, and learn specific strategies through educational resources like the video creator's channel. It also emphasizes the importance of maintaining discipline and avoiding emotional trading.

Outlines

00:00

📈 Overcoming Emotional Trading

The first paragraph introduces the video's focus on improving trading psychology for day traders who may have experienced losses. The speaker, Artie, empathizes with the viewers' situation and offers guidance on adopting a systematic mindset. He outlines five key rules for good trading practices, emphasizing the importance of a rules-based strategy to avoid emotional decision-making. The summary includes the common pitfalls traders face, such as entering trades without proper analysis and holding onto losing positions due to the 'gambler's mentality.' Artie stresses the need for a disciplined approach to trading, including setting clear entry and exit criteria based on multiple confluences, to ensure strategic rather than impulsive actions.

05:02

🛡️ Implementing Risk Management and Avoiding Emotional Trading

The second paragraph delves into the critical aspect of risk management in day trading. It discusses the importance of having a rules-based trading strategy and the significance of risking a small percentage of one's capital per trade to maintain a healthy reward-to-risk ratio. The speaker also touches on the psychological benefits of systematic trading, which includes reducing the emotional stress associated with trading decisions. The summary highlights the need for proper risk management, focusing on not over-trading, and the pitfalls of revenge trading after a loss. It advises viewers to keep trading simple, avoid emotional decisions, and to practice with a demo account to refine their strategies before risking real money.

10:03

📚 Final Thoughts and Encouragement

The final paragraph serves as a conclusion to the video, encouraging viewers to engage with the content by liking and subscribing for more informative videos on day trading. The speaker reiterates the importance of following the outlined rules and strategies to achieve consistent profitability in trading. The summary reminds viewers of the value of the presented advice, urging them to apply the learned principles to their trading practices and to continue learning through the speaker's video series.

Keywords

💡Day Trading

Day trading refers to the practice of buying and selling financial instruments within the same trading day. It is a common theme in the video, as it discusses the mindset and strategies needed for successful day trading. The script mentions day trading in various contexts, such as the emotional pitfalls traders face and the importance of having a systematic approach to avoid losses.

💡Forex Markets

Forex, short for foreign exchange, markets are where currencies are traded. The video script mentions Forex markets as one of the areas where traders may experience losses, and it is used as a backdrop to discuss the importance of trading psychology and strategy.

💡Crypto

Crypto, or cryptocurrency, is a digital asset that uses cryptography for security. The script includes crypto as an example of a market where traders might incur losses, highlighting the need for a disciplined approach to trading in volatile markets.

💡Trading Psychology

Trading psychology is the mental and emotional aspect of trading that can affect decision-making. The video emphasizes the importance of trading psychology for a successful day trader, pointing out that emotional decisions can lead to losses and advocating for a systematic approach.

💡Systematic

Systematic refers to a methodical and organized approach. In the context of the video, being systematic means following a set of rules or strategies when trading, which helps to mitigate the emotional aspects of trading and leads to more consistent results.

💡Risk Management

Risk management in trading involves the identification, evaluation, and prioritization of risks followed by coordinated efforts to minimize, monitor, and control the probability or impact of unfortunate events. The video script stresses the importance of proper risk management as a key component of a successful trading strategy.

💡Rules-Based Trading Strategy

A rules-based trading strategy is a systematic approach to trading that follows a set of predefined rules. The video script explains that having such a strategy is crucial for avoiding emotional trading and ensuring that trades are entered and exited based on specific criteria.

💡Confluences

In trading, confluence refers to the simultaneous occurrence of multiple technical or fundamental indicators that suggest the same market direction. The script uses the term to describe the need for multiple confirming signals before entering a trade, which is part of a rules-based strategy.

💡Stop Loss

A stop loss is an order placed with a broker to sell a security when it reaches a certain price. The video script discusses the importance of setting stop losses as part of a risk management strategy to limit potential losses on trades.

💡Overtrading

Overtrading is the act of making too many trades in a short period, often leading to a decrease in the quality of decision-making and an increase in transaction costs. The video warns against overtrading, suggesting that focusing on a limited number of trades can improve trading outcomes.

💡Revenge Trading

Revenge trading is a form of emotional trading where a trader makes impulsive trades in an attempt to recoup losses from a previous trade. The video script advises against revenge trading, as it often leads to further losses due to a lack of adherence to trading rules and strategies.

💡Demo Account

A demo account is a practice account that allows traders to simulate trading without risking real money. The video encourages the use of demo accounts to practice and refine trading strategies, which can help traders to develop a rules-based approach and improve their trading psychology.

Highlights

The importance of trading psychology for day traders and the need for a systematic mindset.

Five rules for improving trading psychology and becoming a successful day trader.

The common mistake of trading without analysis based on price movement alone.

The 'snowball effect' of emotional trading and its consequences.

The solution to emotional trading through a rules-based trading strategy.

The necessity of backtesting and forward testing a trading strategy.

The concept of multiple confluences for entry into a trade.

The requirement of having a list of rules to follow before entering a trade.

The pitfalls of trading on emotion versus trading strategically.

The significance of risk management in day trading.

Setting specific take profit and stop loss parameters before trading.

The dangers of overtrading and the importance of focus.

Advice on simplifying trading strategies and avoiding complexity.

The detrimental effects of revenge trading and emotional reactions to losses.

The benefits of trading with a calm and systematic approach.

The recommendation to practice on a demo account to refine trading strategies.

The transition from emotional to rules-based trading for long-term success.

Encouragement to watch more videos for specific day trading strategies.

The call to action for viewers to subscribe for more educational content.

Transcripts

so you're probably watching this video

because you lost a lot of money

day trading the forex markets crypto

whatever

so i'm here to help you with your

trading

psychology the mindset that you have to

have

to be a day trader and to be a

successful day trader

is very systematic so in this video i'm

going to give you

five rules that you must follow in order

to be a good trader to

improve your trader psychology and to

relax

when day trading

[Music]

welcome back to the channel everybody my

name is artie and this

is the moving average a show where we

discuss everything day trading to keep

you profitable on a consistent basis

okay so people do not type in trader

psychology into the search bar

unless they've lost a substantial amount

of money so first let me say i'm sorry

that you lost money

but second let me tell you that i have

done the same

and i'm here to help you with your

trading psychology here's what you're

probably doing

you are getting into the markets you're

watching price action

and you're seeing movement and you get

in on a trade with no other analysis

besides the fact that the price is

trending up like crazy we just had this

huge spike i'm going to get

in i'm going to get out as quick as

possible you know just scalp a little

bit make some money

walk away you get into profit you don't

take it because you think it's going to

go even higher

then it goes reverse and you're like no

no no it's going to go back to where it

was and then i'll make more money

and then it keeps going down and down

and down and down and you're like no no

eventually it'll go back up to where i

entered and i'll get out

at break even this snowball effect

completely

[ __ ] you you got in on a trade with

emotion and you didn't get

out even when you were in profit and

your loss

threshold does not exist so you blew

your account eventually

if this is you welcome to the club you

are a part of the 95 percent of traders

that lose money

but that's okay because i have a

solution for you guys so

jumping onto the charts i want to show

you one example of how this happens

day in and day out now i can't express

to you enough how perfect this is ready

we see this big sloping green up

everything's going we get this massive

bullish engulfing we've broken previous

levels of whatever

you get in on a trade the next candle

starts going red

but because you don't have a good

strategy and your stop losses are too

tight

these two next red candles stopped you

out then it starts consolidating and

then you get another bullish candle and

you're like

oh my god i'm going to get in on this

it's going up so you buy again

stop losses are way too tight next three

candles stop you

out this next candle goes up and you're

like oh my god see i knew it was going

up the whole time i'm gonna get in on

this and i'm gonna hold it

stop loss is too tight you get stopped

out it happens again

and again and again and again to the

point where you're like okay last one

i'm holding it forever and all it does

is go down

this is the typical waiting for the

gambler mentality of trading like people

capitalize on this

day in and day out this is why you have

to have a rules-based

trading strategy what do i mean by

rules-based trading strategy

when you are starting out day trading

you have a strategy right and then you

back test it

and then you demo it forward testing it

this strategy is the only thing that you

should use

so say for example your strategy is a

moving average strategy

and you only go for short positions when

it's below the 21 sma

and long positions when it's above what

you also need to have

is multiple confluences so we are

below the 21 sma we're showing bearish

momentum that's

two and then let's say you're using doji

candles as part of your strategy

then you get a doji bearish engulfing

and you're like cool i'm in on a trade

that is three confluences that you use

to enter your trade

that's what having a rules-based trading

strategy

is you have to have these three things

minimum to hit

in order for you to enter a trade you do

not get in on a trade because the price

is going

that's wrong never place a trade

literally

just get a piece of paper write down

your rules

you do not enter a trade until these

three things or four things or five

things

are met when you're looking at the

charts and you're seeing something

don't click the buy or sell button check

your list

make sure you've hit every single one of

those

then you'll know it's not emotional it's

strategic

then you get in on a trade so rule

number one

is rules-based trading you have to trade

on rules science bro rule number two

do not trade on motion like i mentioned

before

when you get emotional that's the

gambling mentality

that's market manipulation at its finest

basically teasing you with something you

fall for it

and you're stuck in a trap it happens

time and time again and it's why 95

percent of traders lose

so rule number two do not trade on

emotion now rule number three

is an extremely long topic i've made a

separate video on that

it is risk management right here proper

risk management

when day trading is the most crucial

thing ever

because if your rules-based trading

strategy is set to where

you're risking one to four

meaning that if you're risking one to

two percent per trade

and your reward for that is anywhere

from four to eight percent

that means if you win one trade you can

afford

to lose the next four and still be break

even proper risk management

is paramount when day trading and it

helps your psychology

because it's no longer emotional trading

it is

systematic it is rules there are

techniques that you must

follow in order for you to do a trade

think of your day trading

as now being a program your trading

brain

now will not execute a trade unless

these parameters are met

programming is the same thing they're

all if and then statements

so rule number three is proper risk

management

never ever click that buy or sell button

without having a specified take profit

and a specified stop loss in place

rule number four is do not over trade

the tendency for most people especially

if they're like me and they can sit in

front of a computer and watch the charts

all day is to get in on

this pair this indices this crypto and

it's like

57 trades running at the same time and

it's breaking apart your focus

you're looking at too many different

things at the same time and that's where

mistakes come into play

i've done it several times where i'm

looking at usd cad

doing my analysis on that then i pull up

my phone on metatrader4

i type in you know whatever and i place

a trade and i realize that i'm

i just placed a trade on gbp jpy when

i'm doing all my analysis on usd cad

do not over trade do not look at too

many

indices too many 4x pairs focus

on two or three too many pairs too many

indicators

too many lines on your charts simplify

it

it's not complicated so rule number four

keep it simple and the most important

rule of all

rule number five do not revenge

trade what's revenge trading say you

just lost two thousand dollars on a

trade

and you're like boiling inside just

furious and so you're looking for the

next move and like trying to get your

money back because

it's my money and the market just stole

it from me and you start getting angry

and you're completely throwing away your

rules-based system

you are over trading like a crazy person

trying to get that money back as quickly

as possible

and what happens when you trade with

emotions you lose

time and time again because the markets

are looking for people like you

getting emotional falling for trap after

trap after trap

and instead of just losing a couple

thousand dollars on a trade

you end up losing 10 15 or 20 000

dollars throughout the day

because you're angry and you're revenge

trading so rule number five

is do not revenge trade if you are in a

bad

mood if you've had an argument with your

spouse

stuck in traffic super anxious

do not trade if you are angry turn off

your phone

turn off your laptop get away from the

charts

do not trade it is the worst thing you

could possibly do

ever doing these things practicing on a

demo account

really having a strategy that is

rules-based it completely alleviates

all of the emotion from trading i used

to be such an emotional trader where i

would get in a trade and i'd start

sweating and like

oh my god is this gonna go now when i

place a trade

i look and i have my system and i get in

a trade

i set my take profit and stop loss and

then i walk away i'll go have a coffee

read a book like i have no emotion

behind it because

my strategy has proven to be successful

over time

so i just do the trade and i like i'm

calm all the time i don't worry i don't

stress about my trades

and it's really really really refreshing

compared to how i used to trade

covered in sweat so just relax man keep

it simple

have rules watch all of my videos if you

want to learn specific strategies

on how to day trade i mean some people

like to scalp some people like to hold

positions for a few days

my videos have a plethora of all of that

information so go through my videos

set up a demo account start trading

casually it's no risk with a demo

account so

that'll calm you down immediately then

after a month

of you know constantly trading day in

and day out

you'll see yeah my system works now i

can pay in real money

maintain my system and just slowly get

profit over time building and building

and building and building your forex

account or your trading account or your

crypto account

whatever you're looking for so if you

guys have stayed here this long

that means that you like the video so

make sure you leave a like

on the video and if you have not already

consider subscribing for more videos

like this

and we will see you in the next one