The Psychology of Trading

Fear and greed can take over your trading day, faster than you can stop these emotions, if you are not prepared ahead of time.  Understanding what each of these critical emotions are before you start trading each day, can go a long way towards your eventual trading success.  The psychology of trading is not complicated, if you understand the basic premises of fear and greed.  Successful trading platforms always compensate both beginners and experienced traders for these hard to control factors.

The psychology of trading begins with your understanding of the following critical factors:

  • Knowing what fear is, in the stock or derivatives trading arenas, will be tantamount to your success.  Your stock, commodities contracts or derivative accounts are going to change quickly during each marketing day.  Whether you are a novice or an experienced trader, a foreign exchange trading market will move suddenly and unexpectedly.
  • The important psychological weapon to have, in all of these instances, is your own ability to control your reaction to what is happening with your  financial markets.  Be sure not to overreact, since fear will be your own natural reaction.
  • A second critical emotion to control is your own greed.  It is a natural inclination to stay with a winning trade position and receive all of the benefits from it that you can.  This can be a lucky strategy, but, most of the time, you are staying too long in the same direction.  A trading phenomenon called whipsaw can and does usually occur.  This means that your successful market position can turn downward, for other reasons than you are aware of.
  • Following more logical rules, to gain the most profit from your trading positions, is the smarter strategy.  The rules for successful trading include using standard protocols and experienced trading platforms, which help you understand the trading routes that have been profitable.

Learning about the business of stock trading, futures and commodities trading, forex and derivatives takes many hours of practice and years of experience.  Learning how to read the available chart studies is one method of understanding these volatile and profitable markets.  A good platform is important, since a profitable trading platform will have built in stop loss features that help you control any market volatility and your own psychology of trading.    A successful trading company will provide quality education, about the important features of each stock that you are trading or each type of derivative that you choose to purchase.  Experienced traders often find that a new trading platform has new ideas that are useful, also.

Psychology of trading is used for success in the financial markets, with the following applications:

  • Psychology is useful in order to understand the inner workings of each company and its company stock that you choose to trade.
  • Psychology is one of the fundamental elements of the financial market.  How a market moves up or down can be determined by market fear or greed, in itself.  A large purchase or release of a certain commodity, on a particular derivative market, can completely change the direction of that commodity trade market.
  • Psychology is about your emotions, and containing your emotions, while you are trading, is always recommended.  This means that you will need to remain disciplined and will need to stay on your predetermined trading course of action.  Traders always need to make informed and rational financial trading decisions.