Reviewed by Aug 27, 2020| Updated on
Meaning of Trading Psychology
Trading psychology refers to the emotions and state of mind, which help determine success or failure in securities trading. Trading psychology reflects different aspects of the character and behaviour of a person which influence their trading acts. Trading psychology may be as critical in assessing trading performance as other qualities such as awareness, experience, and ability.
Risk-taking and discipline are two of the most important aspects of trading psychology because the execution of those aspects by a trader is critical to the success of its trading strategy. Although fear and greed are the two most widely recognized emotions associated with the psychology of trading, hope and remorse are other emotions that influence trading actions.
Let's Understand Trading Psychology in Detail
Trading psychology may be correlated with a few different emotions and behaviours, which are also stock trading catalysts. Conventional characterizations of emotionally motivated conduct in markets either ascribe greed or fear to most emotional exchange.
Greed can be seen as an overwhelming desire for money; so overwhelming that it often clouds reason and judgment. And this definition of greed-inspired investor or trade suggests that this motivation frequently leads traders to several behaviours.
These can include making high-risk trades, purchasing an untested business, or technology shares only because it's rapidly growing in price or buying shares without investigating the underlying investment.
Why is Trading Psychology Important?
Trading psychology is important for technical analysts to drive their trading decisions by relying on charting techniques. Security charting can provide a large array of perspectives on the movement of a defence. Although technical analysis and charting techniques can help identify patterns for buying and selling opportunities, market movements need understanding and intuition, which is derived from the trading psychology of an investor.
Throughout technical charting, there are several occasions where a trader will rely not only on the experience of the chart but also on their understanding of the protection they are observing and their intuition of how broader factors influence the market. Traders who focus on comprehensive security price influences, discipline, and confidence will express balanced trading psychology. Such an attitude contributes to profit and success.