When it comes to trading, we tend to focus more on market conditions, charts, statistics, and analysis. While it is a good thing to worry about these things, other factors need to be considered. We are talking about trading psychology which plays a crucial role in influencing your trading decisions.
We often ignore this particular aspect of trading without realising its importance. Letting your emotions control your trading decisions is the worst thing you can do because it often leads to negative outcomes.
To understand how to master trading psychology, you need to first recognise the emotions that affect your trading choices. We will cover those details in the write-up below.
Fear
When you venture into trading, it is common to feel fear, especially if things don’t go your way. For example, you have placed a trade, but the market starts moving in the opposite direction. This is when fear starts to creep in as you anticipate a loss.
Fear can cause you to make impulsive decisions. It can make you do things that you wouldn’t have done otherwise. As a trader, it is important to keep fear out of your way, so you can make the right trading choices.
Hope
Having a positive hope is a good thing, but you shouldn’t let it influence your decisions in trading. For instance, you have brought a share because you expected the market price to rise. But after an hour of surge, the market value starts to drop. In such a situation, you may force yourself to believe and hope that holding onto the position will help. Unfortunately, doing such things is only likely to increase your losses.
You need to understand that mindless hope is never good for trading. It does more damage than good. Therefore, you should think logically and make the correct decisions.
Greed
This is another emotion that can land you in trouble if you don’t learn to control it. When you make a solid profit, you are tempted to trade more and push your luck. However, there’s no guarantee that you will get the same results again.
Being greedy in trade can be harmful, especially if you don’t know when to stop or exit the market. You may think you will make a profit, but in the end, you end up losing more. This is why it is crucial for traders not to be greedy.
Fear of Missing Out (FOMO)
To put it in simple words, FOMO happens when you feel a strong urge to trade because you are worried about missing an opportunity. This kind of behaviour usually gets triggered when you see others making gains. You are tempted to make the same choices to earn a profit. This can lead you to make impulsive decisions rather than sticking to your plan.
When you are driven by FOMO, you are likely to make wrong choices. For example, you enter a trade too late or without research. To become a disciplined trader, you must manage FOMO.
By curbing these emotions, you can enhance your chances of making profits. When you don’t let your emotions dictate, you can think logically and make the right decisions.