Nixse
0

Mastering stock trading psychology

If you have already become familiar with all the basics of stock trading (market influencers, charts, etc.), it is time that you learn how to deal with the emotional side of trading. Getting a handle on stock trading psychology is an essential component of becoming a successful trader. Trading such large sums of money can be incredibly stressful, and all sorts of emotions can run high. This is why trading is best done with a clinical sensibility. Keep close to what the news, market, and charts are telling you.

So, first off, which particular emotions are we talking about here? We consider the most important emotions for a trader to keep in check to be greed and fear. Both of these affect your behaviour, but in opposite directions, therefore you should figure out how best to balance these emotions.

Emotions relevant to trading psychology

Greed

The negative impact of this emotion is rather obvious. Trying to squeeze every penny out of a trade while ignoring warning signs can be highly detrimental. It can lead you to take unnecessary risks and chase every small opportunity which floats past you. In the long run, this can result in far more losses than profits. This is the kind of emotion that is most relevant in bull markets.

How can you avoid it? Well, the most important thing to keep in mind is that greed is not only about money. As you begin to become more proficient in trading, you will want to do better and better. The best indicator of your performance, of course, is your profits. So really greed is just as much about a competitive spirit as it is about money. Once you temper your need to win, you can make sure that your profits become more reliable.

trading psychology

You should keep in mind that many other traders can also be affected by greed. Use that to your advantage. For example, at times when a stock is rising for an extended period of time, you should keep a close eye on it. Lots of traders may be hanging on trying to get every last penny out of that stock, but overconfidence is a strong sign of a downturn.

Fear

Fear can have the opposite outcome on your investments. Too much fear can force you to abandon a stock before it has come to fruition. It is just as impulsive an emotion as greed is, so you should keep it in mind when thinking about trading psychology. Negative news about a company or a market can send some traders over the edge. Therefore, this mainly relates to bear markets.

If you let fear guide you all the time, you are unlikely to make any considerable profits in the long or short term. You may avoid losses, but you should be aiming for profit as a trader. Abandoning any venture that has even the tiniest bit of risk is not wise. You can rarely rely on a sure thing. No investment is without risk; this is the very nature of trading. If one stock was known to be a 100% foolproof investment all the time, everyone would invest in it.

More importantly, fear is infectious. You should keep this in mind when trading Once the general feeling is one of negativity; fear spreads like wildfire. Once again, you can take advantage of this when the time is ripe if you believe a stock is on the up after exaggerated negativity.

As we said, both of these emotions affect your trading. You may start off with too much greed or fear, or swing from one to the other. Greed makes you invest too much, and fear makes you invest too little. Ideally, fast analytical skills and reasoning should prevail over both of the emotions. However, you are still human and therefore, not perfect. Your main goal should be to find where the balancing point between the two is, and not being too impulsive.

You should also, as we have mentioned, keep the psychology of others in mind. The stock market is essentially controlled by how confident investors are in stock. Knowing what the masses are thinking is essential in knowing what your next move is.

Some guidelines for stock trading psychology

So what can you do to keep your emotions in check? There are several guidelines we can provide you with to put you on your way.

Keep to your rules for stock trading psychology

In order to avoid pitfalls, you should make hard rules for yourself to follow when you feel uncertain. This can make it easy to override your emotions and make rational decisions quickly.

trading psychology

To master trading psychology, you should mould the rules keeping your particular tendencies in mind. You should avoid investing too heavily if you believe your greed can overpower, and vice versa with fear. Experiment with them for a while before you settle on a particular style. You should make sure the style works for you before committing to it.

Some of the sort of rules you should keep in mind could be as follows: limit your daily expenses on the market, mark what kind of prices you are aiming for (i.e., when to enter and exit a trade).

Practice trading

You can try trial trades while you set up your particular style of trading. These trades could be paper or demo trading. Both of these types of trading give you the option of trading without risking any real money. In fact, it simulates real trading quite closely as you interact with the actual market and quite closely with real traders. This can eventually hopefully give you the confidence you need to start trading in the real world

Expect losses

Especially when you have just started trading, losses are to be expected. While trial trading can allow you to understand how the market works, it does not have the same impact emotionally. Once you start for real, your emotions will have a much bigger role to play; there is much more at stake.

So anticipate losses. Expect to get flustered. It is an inevitability. More importantly, though, it is an opportunity to learn. You can better understand what your natural tendencies are and adjust your strategy accordingly.

trading psychology

More importantly, you should not keep investing in a product if it keeps tumbling down. As you are bound to suffer losses, do not keep investing in the hopes a stock will jump back up. It is best not to get too attached. The best way to do this is to have price points that you agree to sell on beforehand. Where this price point is, you will have to use your best judgment to decide.

Take after other traders

Seasoned traders will, of course, be the best people to tell you about the direction of the market. In the age of the internet, you can learn directly from them, watch their youtube videos, read their articles. Many traders also offer services where they can follow all their moves over time. You should be searching for the sorts of traders who are still active and not resting on their laurels. These are the people who will know how the market is currently doing and have the skill to analyze it.

  • Support
  • Platform
  • Spread
  • Trading Instrument
Comments Rating 0 (0 reviews)


You might also like

Leave a Reply

User Review
  • Support
    Sending
  • Platform
    Sending
  • Spread
    Sending
  • Trading Instrument
    Sending