Trading Psychology. Part 1. Introduction
Trading psychology deals with the mental and emotional state of traders. It’s all about how your behavior and mindset affect your trading. It also touches on your discipline and willingness to take risks.
Your mindset plays a significant role in your long-term success in trading. Understanding how you feel about trading can be just as important as working on your skills in the stock market.
Let’s look at two major emotions in trading:
- Greed can cause a trader to stay in a position too long, trying to squeeze every last cent out of it. Greed can also motivate traders to take risky and speculative positions. This most often happens at the end of bull markets when speculation runs rampant.
- Fear is the opposite. It’s the reason people sell early to cut losses and avoid further risks. Fear is a common occurrence in bear markets. It can cause some traders to irrationally exit the market.
Never underestimate the power of stock market psychology. Fear can turn into panic.
Emotions play a significant role in your overall trading strategy. If you want to succeed, you need to master them.
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