There are numerous instances in trading where a trader needs to rely not only on the chart’s insight but also their own understanding of the security that they follow. Read on to learn why trading psychology matters a lot and how you can use your intuition to address broader factors are affecting the market.
What does trading psychology entail?
Trading psychology refers to the mental condition and emotions that facilitate success or failure while trading securities. It represents various aspects of an individual’s personality and behaviours that influence their trading actions. This is typically considered as important as other attributes in determining trading success such as knowledge, experience and skill.
Trading psychology is basically the emotional component of the trader’s decision-making process which may help explain why some trading moves appear more rational than others. Not to forget that greed drives trading decisions that appear to involve too much risk and fear drives actions that appear to avoid risk altogether and generate too little return on investment.
Facts about trading psychology you must be aware of
Discipline and risk-taking are two of the essential aspects of trading psychology. A trader can choose to implement these aspects to achieve success through a trading plan. Trading psychology can be related to a few specific emotionally-driven behaviours in markets that are often catalysts for market trading.
Greed can be referred to as an excessive desire for wealth, which clouds rationality and judgement leading to greed-inspired investing or trading. This may include buying shares of an untested corporation or technology, making high-risk trades, or buying stocks without analysing the underlying investment.
Additionally, such emotions may inspire investors to stay in seemingly profitable trades longer than is advisable, with the hope to squeeze out extra profits from it or to acquire large speculative positions. Conversely, fear can lead traders to shut down positions prematurely or to refrain from taking on risk to avoid large losses.
Regret may cause a trader to make an investment after initially missing out on it. This is considered a violation of trading discipline and often leads to direct losses from uncertain security prices.
Applications of trading psychology
Trading psychology is often utilised by technical analysts to drive their trade decisions based on charting techniques. Such type of trading mechanisms can provide a broad array of insights on the movement of a security. While charting techniques and technical analysis can be helpful in spotting current trends for buying and selling opportunities, it also requires a good grounding and intuition for market movements which can be derived from an investor’s trading psychology.
Investors with a keen focus on comprehensive security value influences, discipline and confidence exude balanced trading psychology that eventually contributes to profitable success. If you are interested to gain a strong trading mentality, then go ahead and explore professional trading courses in London, today.