Role of Trading Psychology in Trading Results

By | June 7, 2011

Trading psychology is the main factor that effects your trading results or returns. Most of the time many people fail to get profits from their investments in trading. Even though they are well knowledge persons and have long foresight, they may have not know about the trading psychology and the factors that effect trader mindset while working on trading.

Psychological factors do not have anything to do with the technical aspects of trading. Your thoughts and feelings can have a significant impact on the outcome of your trading. Your emotions and feelings are crucial elements to do trading. The way of behavior and mindset of a trader can determine the trading results. There are a lot of ways in which feelings can interfere with trading gains. In the psychology of trading, there are only two popular situations that come up when emotions take a part in trading – A trader can either hold on too long to a losing position because of the fear of losing out on possible future gains or he can let go too early of a winning position because of the fear of losing when the values dip. One common element in both scenarios is the fear of losing. Therefore, the emotion of fear has a great impact on results of trading.

Another psychological factor is greed, which also has same impact on the trading results. A greed makes the trader wait, to get more and more profits and when the trader is influenced by this greed, he would like to buy more and more positions. This can cause to get losses when suddenly market tuns into down moment. For example: When a trader gets excitement about his winning positions, he buys more and more shares. Unfortunately, the market starts to fall down suddenly, but the trader still in greed to get more and more profits. But at last, all his positions will lead to great loss due to his greed.

Hence, these emotions are to be controlled by a trader, as these have a great impact on trading results.