Web Statistics traders psychology - a quick look at sophisticated traders psychology

Thursday, 23 May 2013

traders psychology - a quick look at sophisticated traders psychology

Traders Psychology 

Traders Psychology
Traders Psychology

Emotion States Of The Average Trader – Greed, Fear, Hope, and Regret

Trading is not an easy game. You have to take the wins with the losses and learn to be one of the most patient persons in the world. But there is a deeper hidden side of trading that no one really talks about these days. That is the Psychology behind trading or traders psychology. 

There are many psychological states for us as human beings, but as traders there are even more heightened states of emotions that drive our most individual decision making process. These highly emotive states are GREED, FEAR, HOPE and REGRET. 

The stock market is known to be a game of chance however you must realize the daily movements and fluctuations on the market are nothing more than emotional groups of people just like you and I who are basing their decisions on emotional status. 

If you can understand these emotions you will have an edge over others when trading. There are always going to be clues for you each day, but astute traders know the warning signs are subtle and hard to understand at times, but if you can master the recognition by seeing examples, you can maximize your chances of winning consistently on the market each week. 

What is Greed?

We can define greed as a desire for 3 things:-

1) Personal satisfaction
2) More money
3) Wealth.

When we are talking in terms of trading, we can define this even further by acknowledging a traders one true desire. To find that instant trade that is going to capture unrealistic profits in a short period of time. 
Greed here is when all a trader can see is how much money they have made, not how much money they could lose if things go against them.

The thing to remember here is that profit is not actual realized profit until a position is closed. Until then, all profit is just PAPER PROFIT. Greed can then cause a trader to ignore proper risk management procedures and increase their risk of heavy losses. 

What is Fear?

This is one of the most talked about emotion in trading. It is also one of the emotions that all traders struggle with time to time. FEAR!

We can describe fear as a distressing emotion which is our human brain reacting to something that is biologically implanted in us at birth. It results in a survival response, no matter if we are in an immediate threat or something a bit more unrelated. 

Of all the human emotions, FEAR is the most powerful. When you are trading, fear can take over and cause you to sell a position, or even buy fearing you are about to miss a rally. Fear can cause us to panic and make silly mistakes. 

Fear can get  you out of a bad trade, but it can also make you take profits from positions too early. You can  panic, jump the gun only to see the prices take off again. 

Also fear seems to be triggered from previous emotional memories. Have you ever remembered a time when you lost significant amounts of money on a particular trade. Many traders have these horror stories unfortunately  However, fear can come in and remind us of the past and cause us to stay away. If you are afraid to enter a quality set up, there really is no point to trading. 

What is Hope?

Next we have HOPE!

This is a raw emotions and expectation that something will happen. Its a want or need, and expect results. 

This is a dangerous human emotion, when it comes to the trading world. Hope is what keeps a trading losing time and time again consistently

Hope can prevent a trader from taking profits when his position is in a winning or profitable position. Traders have a habit of thinking they CAN BEAT THE MARKET, when this is impossible. Normally a trader is in hope when he position goes against him and he refuses to let it hit a certain stop loss level. He will believe and tell himself that the position will come back to his entry level and then be in profit, right at the time when the position is going so far past him, and the damage is so great, HOPE becomes a sense of denial in some regards. 

Normally when HOPE takes over your thinking the market will punish you beyond your worst nightmares. Traders who live in hope face huge risks and maximum damage in the markets. It might not happen today, but when they least expect it. 

What is regret?

Lastly we have REGRET. 

Many traders can relate to this powerful emotion when it comes to trading. The reason is because it goes hand in hand with the other three raw powerful emotions above. 

Regret is a kind of toned down depression or sadness over something that has happend as a trader. Especially when it involves a loss or missed opportunity. 

This can be also the feelings of WHY and HOW did things turn out in a negative situation. Normally the trader will ask questions why, but soon realize that damage is done and asking oneself questions can not undo the damage. Then the trader will go in a further second degree of guilt and further regret. 

The positive thing about the REGRET emotions is that positives can come from this. Lessons will be learnt and a trader who can go on, will usually use the mistakes and lessons learnt to make better trades next time. A good trader will have some regret but be able to move on and use his past mistakes in a good way.

We all grow older and make mistakes. Life would be pretty boring if we went about our day doing the right thing. So as a trader you have to realize that you will make many mistakes along the way, however the second part to this realization, is that they can help in future times. Mistakes should only happen once. Learn from your mistakes, and do not dwell on them. This is the best way to become a self educated trader who can maximize his profits and minimize his risks. 


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