In trading, a trader might get involved in some trades which are non-profitable for them. This is often a roller-coaster ride for some as it creates hassle in the decision-making power. To trade effectively, the right mindset is essential. Yet, nothing is harder than divorcing ourselves from a multitude of factors that have created our mindsets in the first place and that dictates how our brains function. We are influenced by parents, family, friends, the environment, society, the media, books, and more. By the time we start trading, all of these influences tend to fix trading patterns that are often dysfunctional or suboptimal. Trying to change these patterns is somewhere between difficult and frightening.
RIGHT MINDSET IS EVERYTHING
Your mind plays a big role in your long-term trading success. It can be just as important to understand how you think about trading as it is to work on your stock market skills.
Let’s look at two big emotions in trading:
Greed can make a trader stay in a position too long to try to wring every last cent out of it. Greed can also motivate traders to take risky and speculative positions. It’s most common toward the end of bull markets when speculation runs wild.
Fear is the opposite. It’s the reason people sell early to cut losses and avoid taking on extra risk. Fear is common during bear markets. It can make some traders exit the market irrationally.
Never underestimate the force of trading market psychology. Fear can turn into panic.
Emotions play a big role in your overall trading strategy. If you want to be successful, you need to master them.
Effective trading thus involves personality modification. People who are not willing to attempt this should not even bother with trading." Those who concentrate only on the so-called logical aspects of charts and trends, including all those patterns like "flags, triangles, and channels or stops and trading ranges, will ultimately flounder on the myriad emotions that inevitably come into play and even dominate the markets.
The 4 Fears of Trading
It’s important to face your fears, so let’s break them down…
Trading Psychology Fear of Pride: It’s good to take pride in a job well done. But sometimes, we pin our pride on our ability to score big wins. This can be problematic since we can’t control the markets.
Trading Psychology Fear of Happiness: Happiness is a virtue, right? Sure, but it can also lead to laziness. If we rest on our laurels for too long, we can miss some great opportunities. And if we’re used to disappointment, we can fear the unfamiliar feeling of success. Weird, right?
Trading Psychology Fear of Anger: Anger, like pride, can convince us that we know better than the market. If we can’t accept what the market does and we get angry at it for disagreeing with our almighty knowledge, we risk making a bad trade worse.
Trading Psychology Fear of Impatience: Good things come to those who wait. But let’s face it, staring at our screens all day can be tiring.
It’s important to stay focused and give your trades time to win. If you cut out too soon, you might miss out on the big breakout you were hoping for. As you can see, it takes a LOT of practice to balance fear and greed.