But neither of these technical skills is as important as the trader's mindset. Containing emotion, thinking quickly, and exercising discipline are components of what we might call trading psychology. There are two main emotions to understand and keep under control: fear and greed.
Snap Decisions Traders often have to think fast and make quick decisions, darting in and out of stocks on short notice.
To accomplish this, they need a certain presence of mind. Emotions simply can't get in the way.
Key Takeaways Overall investor sentiment frequently drives market performance in directions that are at odds with the fundamentals. The successful investor controls fear and greed, the two human emotions that drive that sentiment. Understanding this can give you the discipline and objectivity needed to take advantage of others' emotions.
Understanding Fear When traders get bad news about a certain stock or about the economy in general, they naturally get scared. They may overreact and feel compelled to liquidate their holdings and sit on the cash, refraining from taking any more risks.
In this case, it's a threat to their profit potential. Quantifying the fear might help.
Traders should consider just what they are afraid of, and why they are afraid of it. But that thinking should occur before the bad news, not in the the attitude of others to trading of it.
Fear and greed are the two visceral emotions to keep in control.
By thinking it through ahead of time, traders will know how they perceive events instinctively and react to them, and can move past the emotional response. Of course, this is not easy, but it's necessary to the health of an investor's portfolio, not to mention the investor. Overcoming Greed There's an old saying on Wall Street that " pigs get slaughtered. Sooner or later, the trend reverses and the greedy get caught.
Strategies for professionals on binary options is not easy to overcome. It's wise to set limits on the maximum amount you are willing to win or lose in a day.
If you hit the profit target, take the money and run. If your losses hit a predetermined number, fold up your tent and go home.
Find the Right Attitude for Trading Success
Either way, you'll live to trade another day. Conducting Research and Review Traders need to become experts in the stocks and industries that interest them.
Keep on top of the news, educate yourself and, iif possible, go to trading seminars and attend conferences. Devote as much time as possible to the research process.
That means studying charts, speaking with management, reading trade journals, and doing other background work such as macroeconomic analysis or industry analysis.
The Importance of Trading Psychology
Knowledge can also help overcome fear. For example, you might consider using options to mitigate risk. One of the best ways a trader can learn is by experimenting within reason. The experience may also help reduce emotional influences. Finally, traders should periodically assess their own performances.
This periodic assessment can help a trader correct mistakes, change bad habits, and enhance overall returns. Compare Accounts.