The Psychology Of Stock Trading
Your trading career depends more on your psychological state, than your chosen technique. One of the major aspects of trading psychology is discipline. The presence or absence of discipline affects a trader’s chances of success. The ability to manage our emotions with every gain and loss is one of the most important aspects. Emotions tend to rise to the surface during times of uncertainly, as we are faced with unexpected situations or crises.
Practice and training
A career in stock trading needs enormous confidence and self-belief. It is said that the reason that most traders lose is because they are not psychologically prepared to trade. Most traders are not ready to accept the financial risk for something on which they have no control over the outcome. To be successful a trader should not be content with the levels of success he or she has achieved, or think the ability for trading has reached its peak. Constant education, practice and training are essential to hone one’s skills and develop sharper acuity. Decision-making abilities should be focused on particularly, in order to sharpen the lightning fast decisiveness that is often required when trading in stocks.
This kind of practice also heightens human judgment. Traders should identify what trading techniques tend to produce the most consistent and profitable results. These techniques help traders not to put their trading equity at risk.
Self-control is one the most important aspects of behavior control. When entering and exiting a trade, a trader needs to control his/her emotions. A trader, who is disciplined, is immune to panic, and neither does he or she allow euphoria to affect judgment when the trade does well. Whether he/she makes a profit or loss, a trader’s emotional state should be equanimous.
A set of pre-determined trading rules should be religiously followed for success in trading. If according to practice, the trader’s instincts dictate that he or she ought to exit when a stock reaches a certain upper limit, he/she must exit at exactly that price.
Stock market speculations should be approached with perfect planning, research, and discipline in its execution. For example, it would be absurd for a business owner to get into a panic during the first or second slow day of sales.
The most essential component of trading discipline is the self-punishing feedback mechanism. A trader would lose his/her edge in the stock market if he/she breaks trading rules and drifts away from established guidelines. In certain cases the punishment is quick and disappointing. A trader's sudden loss of focus can make him/her lose an opportunity for making a profit. This punishment could also last for a longer term, which occurs when the trader strays from the trading rules in a gradual manner. While this strategy may prove successful initially by sheer fluke, but if the trader continues to deviate from established strategies, it usually results in failure. Hence, a trader who loses discipline will surely fail, whether in the short term, or over the long term, gradually.
Thus, trading psychology is a pattern or trend that a trader creates from personality traits, which are dependent on disciple, planning, and executing the planning effectively.