In the article we will talk about psychology in trading, we will understand what the “trader’s cycle” is, and we will also provide practical recommendations for overcoming it.

Content

Trader's cycle
Phases of the Trader's Cycle
- The first phase is “stability”
- Second phase - "sudden impact"
- The third phase is “increasing risks”
- The fourth phase is “collapse”
Repeating the cycle
How to avoid the cycle?
- Rest and recovery
- Lifestyle
- Approach to trading
- Working environment
- Trading system
- Savings and sources of income
- Withdrawal of profits and breakdowns to zero
Conclusion

Trader's cycle

A trader’s cycle is the time interval from the first deposit replenishment to its complete loss. The cycle consists of four phases, each of which is accompanied by a certain state of the trader.
Every trader is in one of the phases of the trader’s cycle; it is impossible to avoid the cycle by engaging in trading on a regular basis. However, you can stretch out the phases and minimize your losses by falling into a “cycle”.

Phases of the Trader's Cycle

The first phase is “stability”

In the first phase, the trader is in a state of balance, copes with his emotions, opens trades only at his systemic entry points, does not engage in high-frequency trading, uses stop losses, follows risk management, has a normal attitude towards losses and lives his own life.

The second phase is "sudden impact"

In the second phase, an event occurs in the trader’s life that takes him out of his state of psychological balance. A shocking event for a trader is a too large loss, which cancels out the results of his work over a fairly long period of time. As a rule, the main reasons for the “shock” are ignorance of risk management and non-use of stop losses, as well as a series of transactions closed using stop losses during systemic trading in compliance with all the rules of the trader’s trading system.
The cause of a sudden blow can also be technical errors: a forgotten or failed order, technical problems with a broker or equipment at the most inopportune moment.
The essence of the second phase is that the trader receives a kind of psychological trauma, which takes him out of a state of psychological balance and pushes him to irrational actions.

The third phase is “increasing risks”

In the third phase, after receiving too large losses, the trader awakens to a desire to win back, which forces him to increase the volume of positions, increase leverage, refuse to use stop losses, deviate from risk management and average positions, which leads the trader to irreparable consequences.
The trader deviates from another important strategy - regular profit taking. He stops taking profits from the market, permanently wanting more, as a result of which he misses out on profits and awakens within himself the well-known feeling of lost profits - FOMO (The fear of missing out), which in turn nurtures the psychological trauma received by the trader and forces him to behave in the market even more aggressive.
The trader develops a so-called “perception filter”: he begins to unconsciously ignore all information and signals coming from the market that contradict his formed unreasonably high confidence regarding the future direction of the market.

The fourth phase is "collapse"

The market goes against the trader's position, the position is liquidated, and he is left without money. On the one hand, the trader has lost everything, on the other hand, he experiences a certain release, and he begins to think objectively, ceasing to wishful thinking.
Over time, the trader puts himself in order and returns to normal life, after which he begins to analyze errors. Having dealt with the mistakes, the trader promises himself not to make them again and not to deviate from his trading system, but time passes, promises are broken, and the cycle repeats.

Repeating the cycle

Most new traders leave trading forever after the “first round”, blaming the market and the damned “manipulators” for everything. Another, small part of traders find the strength to admit their mistakes and return to trading, reaching a new level.
After a while, the cycle repeats for most traders, they are again divided into two categories and most of them leave the market, this time forever.

How to avoid the cycle?

Every trader should accept and understand the fact that the trader's cycle is inevitable, therefore, he should take steps in advance to help "soften the decline." Here are some practical recommendations.

Rest and recovery

Every year, a trader’s work becomes more and more complex: new patterns appear, more and more variables need to be taken into account, which multiplies the emotional load, so rest and recovery are incredibly important: the right approach to leisure will help avoid emotional burnout and will “reboot” you completely clearing thoughts, thanks to which you will return to your favorite work with renewed vigor.
Take regular breaks from trading, take a break from trading, take a vacation and live your life, because the goal of your trading is to improve the quality of your life. If you make good money but feel terrible, is your life getting better? Look for new hobbies and try yourself in new things.
Recommended methods of recovery: sauna, swimming pool, massage, meditation, winter swimming, spending time in nature, traveling.

Lifestyle

Your lifestyle, whether you like it or not, will be translated into your trading, so you should not get hung up on trading - please yourself and your loved ones: spend your profits, develop, travel and truly enjoy life. This will certainly help improve your mood, and therefore the result.
Sport affects your physical health, physical health affects your mental health, and mental health helps you be more productive and allows you to stay in a state of balance longer. Also, don’t forget about your mental environment and reduce the amount of time you spend on gadgets and news resources.
Pay attention to the following areas of your life: health, thoughts, nutrition, lifestyle, sleep, relationships with loved ones.

Approach to trading

Your approach to trading is the cornerstone that can either save you from the “trader’s cycle” or push you towards it. Here are some basic points:

1. Risk management.

Strictly follow risk management and under no circumstances overestimate risks. In order to technically not be able to bet too much on one transaction, diversify your funds across different places. For example, divide your trading deposit into four parts and relocate funds to different exchanges and wallets.
This approach will have a great psychological impact on you, due to which, if you lose, it will only be part of the funds. Even if you fail - while you are transferring funds from one account to another - enough time will pass for your brain to remember why you split them up and withdraw them, and your emotions will have time to subside.

2. Fixation of profit.

Fix positions in parts, always leaving a small part in the transaction. Using this profit-taking strategy, you will skim the cream of the crop on successful trades and stop experiencing FOMO, which will have a beneficial effect on your trading.

3. Removing an asset from the watchlist.

If you still did not adhere to the strategy of regular profit taking and closed the position completely, remove the asset from the watchlist and stop following it for a while.
Why do this? Imagine that after you fixed your profitable position, the price increased by another 10-20-30%. How will you feel? Most likely, FOMO (a feeling of missing out on profits) will awaken, you will enter the trade back, and the price will then reverse.
To prevent this from happening, either fix positions in parts based on the balance of the position, and not on the initial volume, or do not open the chart after closing the position.

4. Series of stop losses

If you close two trades in a row with stop losses, leave trading for the day, since unsuccessful trades cause negative emotions, on the basis of which wrong decisions are made, and wrong decisions, in turn, cause a desire to win back.
It is extremely important to learn to monitor your emotional state and move away from the terminal in a timely manner.

Working environment

The work environment should be a calm and relaxed place where you can concentrate and will not be distracted from your work.

Trading system

The trading system is fundamental to your trading. You must create it yourself, based on your trading style and risk appetite.

The trading system should include:
1. Risk management.
2. A set of entry points.
3. A set of indicators.
4. Methods of self-control.
5. Strategy for protecting profits.
6. Strategy for transferring positions to breakeven.
7. Various trading strategies and tools.
8. Plan for distribution and withdrawal of profits.
9. Set of rules “What to do if...”.
10. Trader's diary, where you will record the history of your transactions.

Savings and sources of income

In order to avoid an acute desire to recoup when receiving a large loss, you need to have savings - create a safety net for 6-12 months of a comfortable life and do not waste it. In the best case scenario, the savings will not be useful, but the benefits of the “airbag” are difficult to underestimate. Such savings will have a beneficial effect on your psychological mood, since you will be confident in the future and will not tear your hair out by opening a “deal for the sake of a deal” and expecting immediate profits.
It is also necessary to create for yourself so-called “cash flows” (cash flows or additional sources of income) outside of trading, increasing your passive income.

Withdrawal of profits and breakdowns to zero

“Breaks to zero” and samsara in the form of a “trader’s cycle” are inevitable, so you must be prepared for “rainy days” by taking measures in advance.
The best traders manage to stay in a state of balance much longer, but they also have breakdowns. Don't think that you are an exception. Put an end to failures to zero, withdraw profits and create passive sources of income, because the ultimate goal of your trading is to improve the quality of your life. Remember that the funds you keep in a brokerage account do not belong to you, and anything can happen to a broker.
Regular withdrawal of funds guarantees you a stable and comfortable standard of living, since if you lose control over yourself, you will only lose part of the funds, and not everything you had. Create fireproof steps, thanks to which your capital curve will constantly grow.