After going through many painful experiences, I have answered the question: Why is psychology important in trading? Sharing for those who need it.

Trading is not like mathematics, where having the right formula yields results.

In trading, you can follow your plan 100%, yet the market still moves against you; at that point, psychology will determine whether you continue to make sound decisions or destroy your account.

Bad psychology will make you:

Hold onto losses because you are afraid to cut.

Close positions too early out of fear of losing profits.

Enter revenge trades after losses.

Increase position size irrationally due to greed.

A new trader who just learned the EMA + RSI + support zone trading system

He has a clear plan:

Buy when the price surpasses EMA21 + RSI > 50

Stop loss 1%, take profit 2%

Risk on each trade is only 1% of the account

🧠 But when entering real trades:

The first trade is down -0.8%, close to hitting stop loss → fear sets in, exit early, lose 0.8%

Then the price rebounds strongly → regret, feeling "mistaken"

The second trade wins slightly → but still exits early out of fear of reversal

By the third trade, he loses → the psychology of recovering kicks in, tripling the lot size

The trade suffers a significant loss, losing 5% of the account → panic, no longer daring to trade

🧨 Result:

Breaking all discipline due to emotions of fear – regret – revenge.

Correct strategy, but wrong psychology → the account evaporates.