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Trading Psychology Part 1 Summary

What is your Motivation for Trading?

Are you motivated by the money, excitement, the challenge, or the freedom that trading can bring? In our
previous lesson we addressed that a strict motivation regarding money for yourself is likely to lead to
overtrading and greater risk of “gambling”. Trading with high amounts of emotions or excitement can
also lead to unexpected gains and losses. Trading for the challenge and the freedom not only for yourself
but others often produces stronger long-term traders. Those who are motivated to consistently learn and
are willing to treat trading like a business are successful!

What about the Trading Dream do you feel resistance/fear? 

Many people often fear their ability to succeed and their brain produces self-sabotaging thoughts.
Oftentimes your brain will produce doubt as a mechanism. Can you manage the excitement and freedom
that could come from trading?

Imposter Syndrome

You are actually qualified but you feel like everyone else is qualified and you are an imposter. This
feeling may be present at school, work, or romantic relationships. Especially in trading you may ask why
all of the other traders have “found success” and you are falling behind.
You must ask yourself is there really a magical answer to trading that you can “figure out” and all your
trades will be excellent … or instead could it be that much of successful trading is learning to manage the

Pre-Conditioned Mindsets

Society preconditions us to the scientific worldview, which is that everything can be understood through
science. This is immediately instilled through the public school system however the reality in the trading
world is that markets are stochastic processes. The reality of markets is that there is a great deal of
uncertainty, you can never fully understand the markets.

The next and most recent trend of preconditions is Guru-ism. Which is a guru somewhere that has
mastered what you need to succeed. If you can learn from them their secret then you will have easy access
to what you want. The reality is that perfect market prediction is impossible. How could you learn to
predict the actions of other humans across the world who have completely different POV on the market?
Instead of over-focusing on prediction: Could there be another skill that will bring success?

The Three Emotions That Fuel Trading Decisions

All three are essential aspects of being human but are often double edged swords especially in the trading
world. Fear often drives FOMO and Oh No! Pushing you to chase the markets or fear from exercising
smart risk. Pride is a necessary and strong emotion however it should not be taken strongly in the trading
world. Find when you are removing stop losses or doubling down because “you believe you are right”.
Oftentimes people “believe they are right” and will over-lever leading to greed. Over-leveraging to make
back losses or quench the emotional pain of your last loss is gambling not smart investing. Wanting to
make money quickly by over-leveraging makes you more likely to volatility and larger swings in the red.
Take profits viciously!

Dunning Kruger Curves

The curve is an insightful look into the mindset of traders and investors. The curve is a comparison
between your confidence and competence, having high confidence but low competence is the peak of
“Mount Stupid” and as your competence grows your confidence will drop as you may experience feelings
like the imposter syndrome. From here the curve moves upward, as your confidence and competence
grows you become more enlightened and sustainable. You come to the conclusion that you are better than
you realize and that you are consistently working on being sustainable.