Traders’ psychology plays a significant role in the exchange business. Trading psychology deals with traders’ emotional condition on every bent of their trading journey. For instance, trading psychology studies a trader’s emotional state when entering or closing a trade, keeping pace with other related tasks, and watching out for other potential opportunities.
Studies tell us that, in most cases, a trader’s negative emotion is to blame for his failure in exchange business because negative emotions smoke around a part of the brain, responsible for reaching a certain cognitive level and making a decision.
We, as humans, are biased by our emotions all along. Our emotions largely determine how we react to a situation, how we comprehend an idea, and what will hold value for us.
So, it is not just recommended but mandatory to practice controlling our emotions while making important decisions and reacting to failures, successes, and other situations. Use this link to get the best UK demo account from Saxo and slowly develop your skills.
But to control these emotions effectively and productively, we need to know about them first. Let us get a basic idea about the primary emotions that affect trading and its results if they go uncontrolled.
Trading Psychology of Fear
Fear begets from the anticipation of future threats that can harm our state of peace or survival. Fear is among the two primitive instincts and helps sustain our existence by alarming us about potential dangers and loss.
But like any other uncontrolled phenomena, uncontrolled fear is devastating and brings destruction upon atrader.
Instead of warming a retailer of a potential loss, fear obstructs a retailer from placing orders and fogs his mind with irrational and false threats. As an emotion, fear is the most powerful of all. As a result, in the presence of fear, others fade away.
It cripples our analytical ability and rational cognitive abilities, rendering us helpless.
Timid traders cannot perform to their fullest potential and make an instant emergency decision and, therefore, lose in the trading game.
Traders’ Psychology of Greed
When it comes to Forex market, more traders blow out their accounts and become bankrupt for their greed than those for their fear of loss.
Greed comes along with selfishness. It spawns from the ego that tells a trader to go for more.
It’s not uncommon or illogical to want to be rich. But the problem comes when greed blinds a trader and engulfs his rational self and stops him from making the right decisions.
People become so obsessed with their greed that they cannot detect a threat or a critical situation. Hence, they don’t shield their deals with proper risk management and fail terribly.
Making irrational business shifts, overtrading and overleveraging are some perfect examples of decisions driven by greed.
Traders’ Psychology of Revenge
Revenge is a destructive emotion that harms a trader in the long run. This emotion gets more dangerous as it manipulates people covertly. Theyrealize the reason behind their irrational decisions only when it’s too late.
Traders’ psychology of revenge makes them act instantly following a failure to earn back the money they have lost. But the irony lies in the fact that the decisions made out of revenge are basically intended to win more, but they cause people to lose more money eventually.
No matter how odd it sounds, overcoming emotions in daily life is nearly impossible. Nothing can keep you from feeling sad, angry, scared, vengeful, or greedy.
But they can be controlled. With proper practice and by maintaining a well-planned routine, you can dodge them. Once you know the emotions you are driven by and have preset course of action to take in obvious situations, they cannot stop you from taking the right path.
Overlooking emotions is the main mistake beginner traders commit. Professional brokers always emphasize the role of human emotion in their daily dealing process.
Amateurs should put extra importance on regulating their emotions and learning how to do so.