Trading psychology. Trader’s fear, greed and hope
Trading psychology. Trader’s fear, greed and hope
The title of the article reflects the three main psychological states that a trader can experience in the course of his work. All these states are interconnected, flow from one to another and can have a most detrimental effect on the state of the account. You need to know the enemy by sight, so a trader needs to learn to recognize these states in himself in order to prevent their development later. Let’s take a closer look at the fear, greed and hope of the trader.
Suppose a trader has opened a position in the Stock market. Further, the following scenarios are possible:
- The price moves in the direction of the trader, the position starts to bring profit
- The price goes against the trader, the position starts to bring a loss
- The price is marking time
In the first case, when the position starts to bring profit, the trader may be afraid of a price reversal and rush to close the deal before the set take profit order , succumbing to fear. Or, on the contrary, having yielded to greed, he can chase after more profit without moving the stop loss order at least to the breakeven area, comforting himself with the hope that the price, which has rolled back, will again go in his direction.
When price goes against a trader, hope can play a very bad trick on him. The hope is that the price will reverse and go up. Hoping for a price reversal, while fearing to lose money and an open position at the stop loss level , a trader can make one of the main mistakes — move the stop loss order in the direction of increasing the loss.
When an open position does not bring profit due to the fact that the price fluctuates at the same level for a long time, not daring to go up or down, many experienced traders advise to close the position. The logic here is simple, you opened a position based on a certain forecast of price movement, and if this movement does not occur, your forecast is no longer correct. In this case, it is better to exit the market and wait for certainty in the price movement to reopen a position (it may be in a different direction).
In a stressful situation, and trading, for example in the stock market, is a real stressful situation, it is important to have a clear plan of action. An action plan or trading system is needed in order to act without thinking in a pre-planned way. After all, when you are overwhelmed by emotions, it is not at all easy to keep a cool head, and, consequently, clarity of thought. Therefore, it is so important to correctly draw up a trading system and adhere to it unquestioningly.
A trader cannot control the behavior of the market, its sharp ups and downs, but he can control his attitude towards them. You don’t have to strive to control everything, you just need to control yourself. And thanks to the presence of a trading system, this control is reduced only to strict adherence to its rules.
