What does psychology mean in trading?

Psychological variables and our personalities affect the financial decisions we make in the financial markets, often without us realizing it. This is known as behavioral finance, which studies the impact of psychological influences on traders and their unconscious behavior in the market.

Trading psychology focuses on studying the behaviors and characteristics that affect how traders act and the motivations behind their decisions in the financial markets at large.

This science also analyzes the emotional factors behind trading decisions, including the trader's personality, emotions, biases, and the social pressures they face.

Greed and fear are among the most common emotions behind market direction changes, while traders also encounter other emotions such as excitement, hope, depression, and frustration. These emotions and others can lead to hasty or unconscious decisions by the trader, such as opening or closing positions at the wrong moment or taking high risks by opening an incorrect financial position.