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The 10 Best Ways To Improve Your Derivatives Trading Psychology

The emotional and mental condition of the trader, which determines his business decisions, is referred to as trading psychology or investor psychology. It is useful and necessary to embrace some of these emotions, such as hope and confidence. But there must be some control over emotions such as fear and greed. The fear of missing out, or FOMO, is another widely shared emotion in financial markets. To be successful as a trader requires understanding and developing an intense mindset, along with knowledge and experience.

This article below will explain the best ways to improve your derivatives trading psychology.

Ways To Improve Derivatives Trading Psychology

If you are willing to invest in the future and options, then you must follow these tips.

  1. Make a trading plan

A trade plan is the rules you follow when completing and withdrawing transactions. This should include your risk management strategy, entry and exit criteria, and the size of your business. According to the FXCM survey, 70 percent of traders with a trading plan are profitable, compared to only 30 percent of traders who do not have a plan. Therefore, the emotional impact of business can be reduced through a clear trading plan, which could result in more consistent results.


  1. Use emotion management techniques

Trading is often accompanied by a proliferation of emotions that, if unchecked, might impair judgment and lead to unwise decisions.  Methodical techniques to manage emotions, such as intermittent breaks, attention or meditation, and avoidance of impulsive decisions based on emotion, must be used.

  1. Establish a systematic record of trading activities

Diligent monitoring is necessary in trade. Understanding the effectiveness of different strategies, which can only be achieved through systematic record-keeping, is essential. An evaluation of the performance is facilitated by maintaining a trading journal where all operations are documented, together with an underlying justification.

For example, valuable information can be obtained by comparing trader results during the morning hours with those in the later part of the day or by analyzing the effectiveness of various trading indicators such as Exponential Moving averages (EMA), Fibonacci retracements, and candlestick patterns. Through thorough data analysis, traders can identify effective strategies and focus on results-oriented strategies without losing focus.

  1. Learning and focusing on implementing 

The markets evolve continuously, which means that to succeed, you must remain current with today’s most recent trends, news, or developments. Stay informed about markets and trading strategies by attending workshops, reading books, or participating in online forums like what is future and options.

  1. Rewards to safeguard your hard-earned profits

Just as we anticipate our hard-earned money to arrive quickly in our jobs and businesses, so should it in trading. You can reward yourself in your business each day immediately following the trade. This will not only motivate you to maintain your discipline, but it will also safeguard your financial gains. Make it a practice to pay your bills on time, and you’ll be amazed when your profits arrive at the end of each month.

  1. Avoid Hope and Keep Realistic Market Expectations: 

If you believe that the stock market is not the proper location for you, it is best that you try something different. You will maintain realistic expectations in this market. For instance, if you make 10 trades, one of them could increase your capital by 10 times, but the other nine have a chance of becoming losses because you are trading options, and each contract has an expiration date. Then, try to keep your expectations within the time frame.

  1. Check out more instruments: 

Index option trading is becoming increasingly popular, but it’s not the only instrument you can trade-in. You’ve got futures, stock options, commodity futures and options, and currency futures and options. Also, keep an eye on this since it will be helpful to find the best instrument according to your personality through experimentation with small capital. It’s important to realize that everything isn’t for everyone.


  1. Avoid unwanted knowledge 

Continue learning new things about the industry, but don’t study too much; doing so will generate confusion, and a confused mind cannot make sensible trading decisions. Be open to new knowledge at all times, but wait to put it to use with actual money until you have double-checked the outcomes. Make sure it’s the right one for you by doing comprehensive research before implementing any plan or tactic with limited resources.


In India, derivatives trading is one of the most widely used and rapidly growing markets. To work on a single cause and achieve effective results, you must have a combination of Technical Analysis and Fundamental analysis, an excellent understanding of your market situation, and price psychology coupled with favorable and unfavorable characteristics. In the long run, such strategies can also reduce emotional bias and lead to more consistent results. Check out the Kotak Securities app to start stock trading or any kind of investment.

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