Mind Matters in Making Money – Trading Psychology
Author: George Davis
What is trading psychology?
Mastering the trader’s mindset is vital to making money
Making money in the stock trading business requires many skills, from researching a company’s fundamentals to mastering the direction of the stock trend. While all these technicalities might help you buy the right stock, making a profit depends on understanding the trader’s mindset.
Traders’ psychology is often overlooked, but it forms a crucial part of a professional trader’s skill set. Containing emotions, capitalizing on opportunities, and maintaining discipline are the qualities of a successful trader who has conquered trading psychology.
What Is Trading Psychology?
Trading psychology represents professional traders’ various characteristic behaviors and how they affect their trading performance. It is as crucial as other technical skills required to become a successful trader and somewhat more important for surviving stock trading’s dynamic world. However, comprehending trading psychology is relatively easy, because it breaks down into two parts: fear and greed. These two emotions are a trader’s enemy, and they affect the outcome of every trade. Here is how you can control these adverse emotions from getting in your way.
1. Fear: Control Impulsive Decisions
Traders often have to think on their feet, snapping in and out of stock on short notice. To keep up with the fast-moving trade market, they require the presence of mind, and emotions can’t get in the way. Mitigating impulsive decisions and maintaining discipline is crucial for exiting a stock at the right moment. The best way to control this emotion is by mapping your strategies in a physical form and abiding by them. Having this control will help you alleviate emotional imbalance and prevent exiting too soon due to fear.
2. Greed: Avoid Hanging On For too Long
An old saying goes, “What goes up must come down.” This saying reflects the habits of greedy investors who hang to a winning stock for too long. Justifying greed through overly optimistic evaluation of stock data and market news only leads to a tragic end. The only way to remove greed from the stock trading equation is by staying realistic. While hanging on might give you a few lucky hits on Wall Street, every investment doesn’t have to be this way.
Moral of the Story
Rapid decision-making and hanging too long on to a stock are two extreme ends of the trading psychology. One of the major downsides of these emotional decisions is exit remorse. Beginner traders often regret exiting a stock too soon, and this becomes an obstacle in growth. Trading is a risky business, and there is no room for emotions. Adhering to your strategies and discipline is crucial for becoming a successful trader.
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