You may have heard the term ‘Trading Psychology’ floating around business articles and blogs, and you may have a rough idea of what it is. Knowing exactly what it is essential to carrying out business and sales.
What Is Trading Psychology?
You can expect to employ Trading Psychology whenever you engage in the financial markets. You need to ensure that you take the time to understand the various procedures. While you may automatically be employing them, you need to know just what their impacts entail.
There is of course much emotion and cognition that goes behind the average consumer’s mind when they are assessing a possible purchase. Trading Psychology is the analysis of such mental activity – how to influence it, and how to make sure that people are happy with their market.
Trading Psychology experts will tell you that such a phenomenon is as vital to the business process as any skill, acumen, or knowledge. Those with much experience and a seasoned involvement in trading markets can tell you that winning people over and ensuring that their moods are catered to is essential.
Like anything in business, risk-taking and discipline are the most important factors of Trading Psychology, and the individual’s ability to employ such skills in their trading plan are a huge part of whether it will be successful or not.
The Base Human Emotions involved in Trading Psychology
So, what exactly are the biggest emotions which are involved in Trading Psychology, or what do experts in the field focus on the most? They are fear and greed, as well as regret and hope.
This is the most central emotion to our wishes for riches. This is the emotion which forces traders to remain in a trade for a longer period than is wise, in an attempt to force out as much profit as is possible or to reach for positions only cleared in speculative estimations.
You can see greed at its purest and most aggressive form when bull markets reach their climactic final stage, where speculation has become frantic and investors are swapping caution with action.
As an opposition to greed, fear is what causes traders to be reserved, and to halt a position preemptively in the belief that large losses would be caused by holding onto such apparently fickle conditions.
You can find fear at its peaks during bear markets, where traders will begin to forgo rationality during hurried exits from the market. When fear escalates too far, it results in widespread panic, causing the depletion of market values as at a rapid rate.
This is a woeful emotion which causes a reader to enter a trade they may not have been able to in the first place due to the quick movement of a stock. Such a move is an unwise breaching of trading discipline and can result in an entry that is far too late.
The most important lesson you can learn from Trading Psychology is definitely to manage your emotions when trading.